University of California Berkeley
Regional Oral History Office University of California
The Bancroft Library Berkeley, California
The Program in the History of the Biological Sciences and Biotechnology
Robert A. Swanson, M.S.
CO-FOUNDER, CEO, AND CHAIRMAN OF GENENTECH, INC., 1976-1996
With Introductions by
Arthur D. Levinson, Ph.D.
and
Kenneth P. Morse, M.B.A
Interviews Conducted by
Sally Smith Hughes, Ph.D.
in 1996 and 1997
Copyright c 2001 by the Regents of the University of California
Since 1954 the Regional Oral History Office has been interviewing leading
participants in or well-placed witnesses to major events in the development
of northern California, the West, and the nation. Oral history is a method
of collecting historical information through tape-recorded interviews between
a narrator with firsthand knowledge of historically significant events and
a well-informed interviewer, with the goal of preserving substantive
additions to the historical record. The tape recording is transcribed,
lightly edited for continuity and clarity, and reviewed by the interviewee.
The corrected manuscript is indexed, bound with photographs and illustrative
materials, and placed in The Bancroft Library at the University of
California, Berkeley, and in other research collections for scholarly use.
Because it is primary material, oral history is not intended to present the
final, verified, or complete narrative of events. It is a spoken account,
offered by the interviewee in response to questioning, and as such it is
reflective, partisan, deeply involved, and irreplaceable.
************************************
All uses of this manuscript are covered by a legal
agreement between The Regents of the University of California and
Robert A. Swanson dated 1999. The manuscript is thereby made
available for research purposes. All literary rights in the
manuscript, including the right to publish, are reserved to The
Bancroft Library of the University of California, Berkeley. No
part of the manuscript may be quoted for publication without the
written permission of the Director of The Bancroft Library of the
University of California, Berkeley.
Requests for permission to quote for publication should be
addressed to the Regional Oral History Office, 486 Bancroft
Library, Mail Code 6000, University of California, Berkeley
94720-6000, and should include identification of the specific
passages to be quoted, anticipated use of the passages, and
identification of the user. The legal agreement with Robert A.
Swanson requires that he be notified of the request and allowed
thirty days in which to respond.
It is recommended that this oral history be cited as follows:
Robert A. Swanson, "Co-founder, CEO, and Chairman of
Genentech, Inc., 1976-1996," an oral history conducted in
1996 and 1997 by Sally Smith Hughes, Regional Oral
History Office, The Bancroft Library, University of
California, Berkeley, 2001.
Copy no .
Robert A. Swanson, circa 1990
Cataloguing information
SWANSON, ROBERTA. (1947-1999) Corporate executive, venture capitalist
"Co-founder, CEO, and Chairman of Genentech, Inc., 1976-1996," 2001, xix, 193 pp.
Florida family background; education at MIT, 1965-1970; early career at
Citicorp and Kleiner & Perkins Venture Capital, 1970-1975; corporate
executive, Genentech, 1976-1996: founding, financing, staffing the company;
somatostatin, insulin, growth hormone, and other projects; university-industry
relations/tensions; business strategy & plans; initial public offering;
corporate culture; intellectual property; joint ventures; recombinant DNA
controversy. Comments on Thomas D. Kiley, David Packard, Thomas Perkins, and
others.
Introductions by Arthur D. Levinson, Ph.D., CEO & Chairman, Genentech,
Inc., and Kenneth P. Morse, M.B.A, Managing Director, MIT
Entrepreneurship Center.
Interviewed in 1996 and 1997 by Sally Smith Hughes, Ph.D., Regional Oral
History Office, for the Program in the History of the Biological
Sciences and Biotechnology, The Bancroft Library, University of
California, Berkeley.
TABLE OF CONTENTS --Robert A. Swanson
BIOTECHNOLOGY SERIES HISTORY by Sally Smith Hughes i
BIOTECHNOLOGY SERIES LIST vi
INTRODUCTION by Arthur D. Levinson vii
INTRODUCTION by Kenneth P. Morse x
INTERVIEW HISTORY by Sally Smith Hughes xv
BIOGRAPHICAL INFORMATION xviii
I CHILDHOOD, EDUCATION, AND EARLY CAREER 1
Family 1
Education 2
Undergraduate, Massachusetts Institute of Technology,
1965-1970 2
Alfred P. Sloan School of Management, MIT 2
Early Career 5
Citicorp Venture Capital, Ltd., 1970-1974
Venture Capital 6
Partner, Kleiner & Perkins Venture Capital, 1975 9
Job Hunting, 1975 10
II GENENTECH, INC. 12
Attempts to Create Interest in Recombinant DNA Technology 12
Cetus Rejects Swanson and Recombinant DNA Technology 12
Approaching Scientists 13
Foundation and First Years of Genentech 15
First Meeting with Herbert Boyer, January 17, 1976 15
Targeting Insulin as a Product 16
Choosing to Synthesize DNA in vitro 18
Committing to the Foundation of Genentech 19
Financing 21
The First Business Plan, Spring 1976 21
Obtaining Research Agreements 23
Collaborating with Arthur Riggs and Keiichi Itakura 24
Seeking Scientific Consultants 25
More on Obtaining Research Agreements 26
The Second Wave of Financing, February 1977 27
Research and Social Associations at UCSF 28
Controversy over Faculty-Industry Associations 29
Dan Adams and International Nickel 31
Presentation to Crocker Capital, March 12, 1976 32
Arguing for an Exclusive License for Recombinant DNA
Technology 32
Focus on Making a Few Products 35
Somatostatin 36
Limiting Risk 38
Corporate Goals 38
The High Cost of R&D 39
FDA Approval 40
NIH Guidelines for Recombinant DNA Research 41
Somatostatin as a Potential Product 42
Leaking the Somatostatin Success Story in the U.S. Senate 43
Sponsored Research Agreement with the University of
California 43
Building the Business 45
Patenting Issues 45
Thomas Kiley, Patent Lawyer 46
Funding Strategy 47
Deciding against Diagnostic Products 49
More on Focus 49
Acquiring Diverse Expertise 50
The Early Board of Directors 52
Scientific Advisors 54
Postdoctoral Students Opting for Industry Positions 55
Creating a Setting Attractive to Academic Scientists 56
Involving Scientists in Business Aspects 58
The Stepwise Approach to Product Development 59
The First Genentech Scientists 61
A Rejected Project 61
Choosing Research Projects 62
Boyer s Scientific Guidance 63
More on the NIH Guidelines 63
New University-Industry Affiliations 64
The Pajaro Dunes Conference on University-Industry Associations,
March 1982 65
Concern in Academia about Commercialization 65
Turmoil at Harvard, circa 1982 66
Daniel Tosteson 67
Donald Kennedy and Derek Bok 67
Agenda and Access 68
The Biohazards Issue 68
Swanson s Opinions on Issues in University-Industry
Associations 69
Industry Funding of Academic Research 70
Exclusive Licenses 71
Summary 73
Genentech Expansions 74
Sansome Street, San Francisco 74
Point San Bruno, South San Francisco 75
The First Genentech Scientists 75
Growing Genentech 77
Turning Genentech into a Fully Integrated Company 77
Getting FDA Approval 80
Acquiring Diverse Expertise 81
The Recruitment Process 82
Creating Value in a Company 84
The 1979 Corporate Plan 85
Scaling up the Technology: Fermentation, Purification,
and Formulation 85
Introducing the Project Team System 87
Facilitating Corporate Communication 88
Selecting and Terminating Projects 88
A "Loose-Tight" Organization 90
Swanson Keeping in Touch 90
Clear Corporate Goals 91
The Need for Basic Biological Understanding 92
More on Choosing Projects 93
Goal to Remain an Independent Company 94
Early Strategy to Cover Operating Expenses 95
Licensing and Selling Product Rights 96
Early Political and Financial Issues 98
Initial Public Offering, October 14, 1980 99
The Economic and Political Environment 100
Explaining Recombinant DNA Science 102
Valuation 103
Benchmark Payments 105
SEC Procedures 106
Corporate Culture and Strategy 107
Employees as Shareholders 109
Practical Jokes 110
An Integrated Egalitarian Company 111
Genentech Focus on Human Pharmaceuticals 113
Animal Health and Industrial Enzymes 113
Criteria for Product Selection 114
Reaction of the Pharmaceutical Industry to Biotechnology 116
Intellectual Property 118
The Somatostatin and Insulin Projects 120
Press Announcements 120
Relations with Eli Lilly 121
Lawsuit with the University of California, 1982 122
Negotiating: Substance and Style 123
Interactions with Other Biotechnology Companies 124
Swanson s Retirement from Genentech s Board of Directors, 1996 125
Guiding Principles 126
Swanson s Most Significant Contribution 127
TAPE GUIDE 128
APPENDIX
A Curricula Vitae 129
B Swanson s Outline for His Presentation to a California
Venture Capital Firm, April 1, 1976 131
C Genentech, Inc., 1979 Corporate Plan 143
D Draft of Swanson s Acceptance Speech, Stanford Business
School, Entrepreneurial Company of the Year Award, 1983 162
E Swanson s Admittance to Membership in the Royal Swedish
Academy, March 13, 1984 176
F Swanson as "Biotech Superstar," Cover, Business Week,
April 14, 1986 177
G Swanson s speech, Carolinas Chapter of the Association for
Corporate Growth, January 31, 1996 178
H "Genentech s Chairman to Leave Firm," San Francisco
Chronicle, December 13, 1996 185
I Obituaries: Wall Street Journal & Nature magazine 186
J Posthumous Award of National Medal of Technology, 2000 189
INDEX 190
BIOTECHNOLOGY SERIES HISTORY--Sally Smith Hughes, Ph.D.
Genesis of the Program in the History of the Biological Sciences and
Biotechnology
In 1996, a long-held dream of The Bancroft Library came true with the
launching of its Program in the History of the Biological Sciences and
Biotechnology. For years, Bancroft had wished to document the history of
the biological sciences on the Berkeley campus, particularly its
contributions to the development of molecular biology. Bancroft has strong
holdings in the history of the physical sciencesthe papers of E.O.
Lawrence, Luis Alvarez, Edwin McMillan, and other campus figures in physics
and chemistry, as well as a number of related oral histories. These
materials support Berkeley s History of Science faculty, as well as
scholars from across the country and around the world.
Although the university is located next to the greatest concentration
of biotechnology companies in the world, Bancroft had no coordinated
program to document the industry nor its origins in academic biology. For
a decade, the staff of the Regional Oral History Office had sought without
success to raise funds for an oral history program to record the
development of the industry in the San Francisco Bay Area. When Charles
Faulhaber arrived in 1995 as Bancroft s new director, he agreed to the need
to establish a Bancroft program to capture and preserve the collective
memory and papers of university and corporate scientists and the pioneers
who created the biotechnology industry. He too saw the importance of
documenting the history of a science and industry which influences
virtually every field of the life sciences, generates constant public
interest and controversy, and raises serious questions of public policy.
Preservation of this history was obviously vital for a proper understanding
of science and business in the late twentieth century.
Bancroft was the ideal location to launch such an historical
endeavor. It offered the combination of experienced oral history and
archival personnel, and technical resources to execute a coordinated oral
history and archival program. It had an established oral history series in
the biological sciences, an archival division called the History of Science
and Technology Program, and the expertise to develop comprehensive records
management plans to safeguard the archives of individuals and businesses
making significant contributions to molecular biology and biotechnology.
It also had longstanding cooperative arrangements with UC San Francisco and
Stanford University, the other research universities in the San Francisco
Bay Area. The history of biotech project was to provide a basis for
continuing collaboration among the three institutions in the documentation
of recent science and technology through oral history and archival
collection. The only ingredient missing was funding.
ii
In April 1996, the dream became reality. Daniel E. Koshland, Jr.
provided seed money for a center at The Bancroft Library for historical
research on the biological sciences and biotechnology. Thanks to this
generous gift, Bancroft has begun to build an integrated collection of
research materialsprimarily oral history transcripts, personal papers,
and archival collections related to the history of the biological sciences
and biotechnology in university and industry settings. One of the first
steps was to create a board composed of distinguished figures in academia
and industry who advise on the direction of the oral history and archival
components. The Program s initial concentration is on the San Francisco
Bay Area and northern California. But its ultimate aim is to document the
growth of molecular biology as an independent field of the life sciences,
and the subsequent revolution which established biotechnology as a key
contribution of American science and industry.
UCSF Library, with its strong holdings in the biomedical sciences, is
a collaborator on the archival portion of the Program. David Farrell,
Bancroft s curator of the History of Science and Technology, serves as
liaison. In February 1998, Robin Chandler, head of UCSF Archives and
Special Collections, completed a survey of corporate archives at local
biotechnology companies and document collections of Berkeley and UCSF
faculty in the biomolecular sciences. The ultimate aim is to ensure that
personal papers and business archives are collected, cataloged, and made
available for scholarly research.
Project Structure
With the board s advice, Sally Hughes, a science historian at the
Regional Oral History Office, began lengthy interviews with Robert Swanson,
a co-founder and -former CEO of Genentech in South San Francisco; Arthur
Kornberg, a Nobel laureate at Stanford; and Paul Berg, also a Stanford
Nobel laureate. A short interview was conducted with Niels Reimers of the
Stanford and UCSF technology licensing offices. These oral histories build
upon ones conducted in the early 1990s, under UCSF or Stanford auspices,
with scientists at these two universities. 1 The oral histories offer a
factual, contextual, and vivid personal history that enriches the archival
collection, adding information that is not usually present in written
documents. In turn, the archival collections support and provide depth to
the oral history narrations.
Hughes conducted oral histories with Herbert Boyer, William Rutter,
and Keith Yamamoto of UCSF, and with Stanley Cohen of Stanford. To date,
the first volume of the oral history with Dr. Rutter is available at the
Bancroft and UCSF libraries; transcripts of the other interviews are
currently under review by the interviewees.
ill
Primary and Secondary Sources
This oral history program both supports and is supported by the
written documentary record. Primary and secondary source materials provide
necessary information for conducting the interviews and also serve as
essential resources for researchers using the oral histories. The oral
histories also orient scholars unfamiliar with the field or the scientist
to key issues and participants. Such orientation is particularly useful to
a researcher faced with voluminous, scattered, and unorganized primary
sources. This two-way "dialogue" between the documents and the oral
histories is essential for valid historical interpretation.
Beginning with the first interviews in 1992, the interviewer has
conducted extensive documentary research in both primary and secondary
materials. She gratefully acknowledges the generosity of the scientists
who have made their personal records available to her: Paul Berg, Stanley
Cohen, Arthur Kornberg, William Rutter, and Keith Yamamoto. She also
thanks the archivists at Bancroft, UCSF, and Stanford libraries, and
personnel at Chiron, Genentech, and Stanford s Office of Technology
Licensing, for assistance in using archival collections.
Oral History Process
The oral history methodology used in this program is that of the
Regional Oral History office, founded in 1954 and producer of over 1,600
oral histories. The method consists of research in primary and secondary
sources; systematic recorded interviews; transcription, light editing by
the interviewer, and review and approval by the interviewee; library
deposition of bound volumes of transcripts with table of contents,
introduction, interview history, and index; cataloging in UC Berkeley and
national online library networks (MELVYL, RLIN, and OCLC) ; and publicity
through ROHO news releases and announcements in scientific, medical, and
historical journals and newsletters and via the ROHO and UCSF Library Web
pages.
Oral history as a historical technique has been faulted for its
reliance on the vagaries of memory, its distance from the events discussed,
and its subjectivity. All three criticisms are valid; hence the necessity
for using oral history documents in conjunction with other sources in order
to reach a reasonable historical interpretation. 1 Yet these acknowledged
weaknesses of oral history, particularly its subjectivity, are also its
strength. Often individual perspectives provide information unobtainable
through more traditional sources. Oral history in skillful hands provides
the context in which events occur- -the social, political, economic, and
The three criticisms leveled at oral history also apply in many cases
to other types of documentary sources.
v
institutional forces which shape the course of events. It also places a
personal face on history which not only enlivens past events but also helps
to explain how individuals affect historical developments.
An advantage of a series of oral histories on a given topic, in this
case molecular biology and biotechnology, is that the information each
contains is cumulative and interactive. Through individual accounts, a
series can present the complexities and interconnections of the larger
picture. Thus the whole (the series) is greater than the sum of its parts
(the individual oral histories), and should be considered as a totality.
Emerging Themes
Although the oral history program is still in its infancy, several
themes are emerging. One is "technology transfer," the complicated process
by which scientific discovery moves from the university laboratory to
industry where it contributes to the manufacture of commercial products.
The oral histories show that this trajectory is seldom a linear process,
but rather is influenced by institutional and personal relationships,
financial and political climate, and so on.
Another theme is the importance of personality in the conduct of
science and industry. These oral histories testify to the fact that who
you are, what you have and have not achieved, whom you know, and how you
relate has repercussions for the success or failure of an enterprise,
whether scientific or commercial. Oral history is probably better than any
other methodology for documenting these personal dimensions of history.
Its vivid descriptions of personalities and events not only make history
vital and engaging, but also contribute to an understanding of why
circumstances occurred in the manner they did.
Molecular biology and biotechnology are fields with high scientific
and commercial stakes. As one might expect, the oral histories reveal the
complex interweaving of scientific, business, social, and personal factors
shaping these fields. The expectation is that the oral histories will
serve as fertile ground for research by present and future scholars
interested in any number of different aspects of this rich and fascinating
history.
Update. September 2001
In early 2001, the Program in the History of the Biological Sciences
and Biotechnology was given great impetus by Genentech s generous pledge of
one million dollars to support documentation of the biotechnology industry.
At an initial meeting of Genentech and Library personnel in November 2000,
it was agreed that the initial phase of the Genentech- supported project in
the company s twenty-fifth anniversary year should focus on oral histories
with current and former Genentech employees. Archival collection, on the
other hand, was designated as a long-term process because of the greater
necessity to gather oral documentation while minds are clear and because of
Genentech s present need to retain many corporate documents for legal and
other reasons.
On October 15, 2001, The Bancroft Library will celebrate Genentech s
twenty-fifth anniversary and acknowledge its generosity to the Program by
formally presenting the oral histories of Herbert W. Boyer and Robert A.
Swanson, the company s founders. Oral histories are currently in progress
with the following individuals presently or formerly at Genentech: David
Goeddel, Arthur Levinson, Fred Middleton, Richard Scheller, and Daniel
Yansura. Oral histories are also completed or in progress with individuals
at Chiron Corporation and Tularik, Inc. The next phase will expand
documentation to other biotechnology companies.
Location of the Oral Histories
Copies of the oral histories are available at the Bancroft, UCSF, and
UCLA libraries. They also may be purchased at cost through the Regional
Oral History Office. Some of the oral histories, with more to come, are
available on The Bancroft Library s History of the Biological Sciences and
Biotechnology Website: http://www.lib.berkeley.edu/BANC/Biotech/.
Sally Smith Hughes, Ph.D.
Historian of Science
Regional Oral History Office
The Bancroft Library
University of California, Berkeley
October 2001
vi
October 2001
ORAL HISTORIES ON BIOTECHNOLOGY
Program in the History of the Biological Sciences and Biotechnology
Paul Berg, Ph.D., "A Stanford Professor s Career in Biochemistry, Science
Politics, and the Biotechnology Industry," 2000
Herbert W. Boyer, Ph.D., "Recombinant DNA Science at UCSF and Its
Commercialization at Genentech," 2001
Arthur Kornberg, M.D., "Biochemistry at Stanford, Biotechnology at DNAX," 1998
"Regional Characteristics of Biotechnology in the United States: Perspectives of
Three Industry Insiders" (Hugh D Andrade, David Holveck, and Edward Penhoet),
2001
Niels Reimers, "Stanford s Office of Technology Licensing and the Cohen/ Boyer
Cloning Patents," 1998
William J. Rutter, Ph.D., "The Department of Biochemistry and the Molecular
Approach to Biomedicine at the University of California, San Francisco," 1998
Robert A. Swanson, "Co-founder, CEO, and Chairman of Genentech, 1976-1996," 2001
Oral histories in process:
Stanley Cohen
David Goeddel
Daniel Koshland
Marian E. Koshland retrospective
Arthur Levinson
Fred Middleton
Richard Scheller
Keith R. Yamamoto.
vii
INTRODUCTION by Arthur D. Levinson
I met Bob in 1979 while I was concluding a postdoctoral fellowship at
the University of California, San Francisco. I wanted to learn more about
emerging cloning technologies so I talked first to Herb Boyer at UCSF and
then to his partner, Bob Swanson, about what their fledgling biotech
company Genentech had to offer. I was so cautious about my interest that I
didn t want to call Genentech from my lab--I recall using a pay phone down
the street instead.
Bob and Herb painted a compelling picture. It was Bob s vision and
Herb s scientific genius that convinced me to join their newly formed
company. I was also extremely impressed with the caliber of other
scientists who joined Genentech very early on. And Bob had the
determination, energy, ambition and an aura of self-confidence that
betrayed no doubts. He had the belief that we could be part of a
revolution and do great things, although the technical hurdles were
immense .
As Bob discussed his views of how biotechnology could change the
world, I became convinced that the technology indeed held the potential to
create novel therapeutics that would help people in ways that previously
could not have been imagined. And I wanted to be a part of it.
At the time I joined Genentech, most scientists in academia
considered such a move career suicide--few very top people left academia to
go to drug companies. Those who made that choice were often shunned by
their colleagues. Although many of my academic colleagues thought me crazy
and tried to convince me I was making a mistake, twenty-one years later I
can tell you that joining Genentech was one of the toughest but best
decisions I ve ever made.
Bob had the insight that combining the best of two worldsthe
resources of the corporate world with the ability to do pioneering
academic-based researchcould produce so much more than either on its own.
And he was right.
Before joining the company, I wanted Bob s reassurance that I could
continue publishing the results of my scientific research. Not only did he
provide that reassurance, he encouraged publication- -and not just for me,
but for everyone. I published more than twenty papers in my first two
years here. That tradition has continued all these years and now Genentech
viii
is second only to MIT, coincidentally Bob s alma mater, among high-impact
institutions in publishing the most highly cited scientific papers over the
past twenty years .
Bob and Herb wanted to attract the best and brightest scientists. So
they set out to create an environment that retained many of the other
positive qualities found in academia. Bob and Herb gave us autonomy and
allowed us to pursue our individual intereststo explore the boundaries of
science and to discover new diseases, cures, and rules of biologywithout
committees and top-down directives.
Bob was an astute businessman with a very competitive nature. He
applied discipline and insisted from the beginning that Genentech would be
a profitable entity, focusing everyone on relatively short-term goals and
outcomes. We rallied around the race to clone factor VIII and the tissue
plasminogen activator gene and many other challenges, spurred on by Bob.
He would ask the question, "Can we express this gene in one month? Can we
get the expression up to this level by this time?" He always had his eye
on the target. And where we chose to compete, we usually won. Bob s
intense focus on goals was a challenge for us scientists, who were used to
being left alone to pursue research and see where it took us, but it
allowed us to achieve. No one more seriously embodied Henry Ford s maxim
that "obstacles are those frightful things you see when you take your eyes
off your goal."
In the first five years, we were able to demonstrate the technology
worked, follow a business plan, and do great science. Bob understood the
value and importance of aggressively patenting our inventions. Bob was a
creative thinker and the first to use limited R&D partnerships to fund
costly clinical trials on some of our most important products.
Bob was also one of the first to offer extremely attractive stock
options to all employees, thereby inspiring everyone to share in the
success of our work. "People act differently as owners than they do as
employees," Bob used to say. And of course, he was right. He knew the
importance of creating a work environment that placed a high premium on
flexibility, work/personal balance, recognition, excellence, and fun. And,
importantly, on recruiting only the best of talent.
Bob was fascinated by everything, from fermentation through product
packaging. He loved to make his rounds through our labs, offices and
cafeteria, and he took great joy in talking with folks and thanking us for
our hard work and long hours . The unique culture at Genentech is a real
tribute to Bob the hard work, sense of purpose and sense of fun that
employees share. He once said that having fun and acting silly at company
ix
social events was his way of staying connected and breaking down any
perceived barriers because of his position. This was very important to him
and he worked hard at it.
In 198 A I asked to have lunch with Bob to talk to him about concerns
I had about where the company was going and about an arrogant, complacent
attitude I saw gradually taking hold. I remember how approachable and
genuinely interested he was. He was one of us. And he made things happen
that addressed my concerns.
Bob retired from Genentech in 1996 but continued to drop by to see
what we were up to. Sadly, he was struck by brain cancer the following
year and passed away in 1999. He was only fifty-two years old.
One of my favorite spots on our campus is our Founders Research
Center. There s a beautiful metal sculpture in the courtyard- -a life-size
depiction of Bob and Herb s very first meeting. Just looking at it, you
can feel Bob s energy as he enthusiastically pitches his vision to Herb,
with Herb amazed and seemingly transfixed by what he s hearing.
After Bob s death, we decorated the sculpture with flowers and
memorabiliaand, from time to time, we still do.
Few people accomplish as much as Bob did during his lifetime, which
ended far too soon. I often wonder what new challenges, adventures, and
industries Bob would have created if he were still with us. Though he is
gone, his legacy lives on at Genentech and throughout the biotech industry,
and the industry he founded with Herb continues to change people s lives
for the better in ways that Bob so clearly imagined at the outset.
Arthur D. Levinson, Ph.D.
Chairman and Chief Executive Officer
Genentech, Inc.
South San Francisco, California
September 25, 2001
INTRODUCTION by Kenneth P. Morse
Bob touched many of us in his early years, during high school and at
MIT. We each had our own unique relationship with him. No single person
can speak fully on behalf of all the communities of his youth. By sharing
our appreciation for Bob s life through this oral history and other
recognitions, we can enlighten others about the many aspects of Bob s human
values, personality, and the reasons for his success, which we encountered
and enjoyed.
I am fortunate to have known Bob since the fall of 1965 when he
entered MIT as a freshman and joined the MIT chapter of the Sigma Chi
Fraternity where we lived together. We were together regularly every year
since then, especially as our families expanded and grew close. We shared
the excitement and frustrations leading up to the creation and success of
Genentech. Bob s own words describing how he started up Genentech (later
in this oral history) should be required reading at every university
teaching entrepreneurship.
Bob s personality in his formative years foreshadowed many of the
fine traits which marked his adult life--his sense of humor, loyalty, shy
humility, curiosity, commitment to ambitious goals, and his belief in the
importance of being "lucky." As fraternity brothers during his five
special years at MIT, many of us were lucky enough to share good times and
know him well.
Bob s small family moved to Florida from Brooklyn when he was four.
Soon thereafter- -or at least by the time he was a junior in high school- -
his parents and grandmother decided Bob was smart enough to go to MIT.
When we wonder how to produce successful children, it helps to consider
some of the family values in the Swanson home as Bob was growing up:
Team Sports: Bob played Little League baseball in grade and high
school, coached by his dad, "Swannie."
TV: Bob was permitted only one hour of TV a week- -usually Disney or
Wild Kingdom.
Helping Others: Bob was encouraged to tutor kids in chemistry and
math.
Early Networking: As a junior, Bob was urged by his parents to write
to MIT and to Miami-area MIT alumni so his name would be remembered and
appear on the recruiting mailing lists by the fall of his senior year.
xi
High Expectations : High parental expectations were not limited to
sports and academics: when Bob returned to the car after seeing his prom
date to her door, his Dad prompted, "So Bob, did you give her a smooch?"
Sense of Self: When Bob boarded the Eastern Airlines flight bound for
MIT, he had a fine felt hat in the overhead bin. He may have been the only
entering freshman in the class of 1969 to be so well equipped. I believe
his dad wanted to do everything possible to prepare Bob for MIT, for his
career, and for the Boston winters.
Bob s clothes trunk was stenciled with his full name, "Robert A.
Swanson." Bob s parents sent their only child off to school with a clear
sense of his identity. After college, that special trunk served for years
as his coffee table until finally it was replaced by Judy s more refined
taste.
Bob s quiet confidence was already immediately evident and very
appealing in the fall of 1965 when he walked in the door of the Sigma Chi
Fraternity house at 532 Beacon Street. He was humble too, often saying
that he would never have gotten through MIT without important academic
tutoring from his "Sigma Chi frat lodge brothers." Bob s humility made it
easy for the upper classmen to want to help him with tough problem sets and
exam preparation.
Giving Back: Even in his early college years, Bob already believed
that everyone should "give back" to the community that supported their
survival and fostered their success. Bob was famous for giving the most--
and the best--tours of MIT during freshman orientation week.
Values and Brotherhood: The Sigma Chi Fraternity at MIT was not only
studious but also advocated that the brothers should have "a high sense of
honor and a deep sense of personal responsibility." All the brothers were
taught Christian ethics, values, and social networking skills.
In those days, the fraternity brothers had a vintage 1920 s fire
engine and would motor out to Wellesley College to serenade "The Sweetheart
of Sigma Chi." Bob--who was almost tone deaf--was forbidden to sing. He
stood graciously in the back of the choir, silently mouthing the words. He
saved his contribution to later in the evening, after the brothers were
invited inside for cider and socializing.
As fraternity house social chairman, Bob had a simple admonition to
each freshman: "You gotta show up at the party. You gotta get a date--or
I ll get one for you!"
Role Models: The nurturing and demanding environment of Sigma Chi at
MIT produced distinguished alumni who served as role models by joining
xii
their much younger "brothers" for dinner, sharing their wisdom and vision.
They included then-president (and later chairman) of MIT James Killian and
Alex d Arbeloff, the current chairman of MIT, himself a successful
entrepreneur. Sigma Chi at MIT also spawned an Episcopal minister and, more
recently, several pioneering Internet entrepreneurs.
Transgenerational Bonds: We are all grateful that MIT researcher Tim
Berners-Lee (not Al Gore) invented the Internet so we could communicate
about Bob s failing health in real time. Here follow a few of the many
special e-mails sent by the next generation of Bob s MIT fraternity
brothers. I handed these fond messages to Bob just a few weeks after he
was diagnosed with the insidious and gloomy glio-blastoma:
"I just wanted to write you a short note to introduce myself and wish
you a quick and healthy recovery from your current condition. I know
it must be tough, but you ll pull through. Don t ever give up!
Even though we ve never met, I know you have a wonderful wife, two
daughters, and many friends, that love and care for you deeply. You
have been successful throughout your career and your generosity has
touched many, many people (including me) whom you have never met.
Lastly, I d like you to know you will be in my prayers. I m sure
you ll be over this soon, and hopefully we ll meet face-to-face at a
reunion in Boston. I very much look forward to seeing you then. . .
In hoc signo vinces ,
Jason Black 98"
"Brother Bob,
We heard of your recent surgery from brother Ken Morse. We are all
pulling for you and better still, praying for you. While we have
never met, I do feel that I know you. You are an inspiration to many
of us since we all know the role you played in founding Genentech,
the first large biotech company in the world. It gave many of us the
confidence to go out into the real world and leave our marks. It
also gave us the hope that anything is possible.
We know it must be tough now, but "fight the good fight" and we hope
to see you at the next reunion!
In hoc,
Samuel Choi, Class of 1993"
Xlll
During the fourteen months after Bob was diagnosed, his fraternity
brothers tracked details about his situation and shared admiration for his
humor and humility. Many of the best e-mail admirers had not met Bob in
person, but knew him by the plaque acknowledging his contribution to house
repairs. Hundreds of MIT men have reflected on Bob s special spirit of
generosity ever since.
Then, December 6, 1999, the fraternity members received the last in
the series of these messages. It started with the subject line: "We have
lost our Brother."
Looking back, I believe Bob lived the life he wanted, built on his
early values. The ties that bound us and his other close friends together
for thirty-plus years, were forged of personal loyalty, adherence to shared
goals, desire for mutual support, and commitment to fun and friendship.
These ties were elastic, expanding to embrace spouses and children, and
stretching across the country. These qualities of caring, friendship,
brotherhood, and striving for excellence arrived with Bob at MIT, were
amplified at the Institute and at Sigma Chi, and then continued to lead him
to the successful life and values which we celebrate in this oral history.
Special MIT Program: At the end of the 1960 s, when the Vietnam war
and the specter of the draft cast their dark shadows across the MIT campus,
Bob aced the draft exam but decided that staying in school for a fifth year
would be more valuable than joining the army. He persuaded the MIT
administration to permit a special five-year dual degree program in
chemistry and management. One piece of Bob s plan was to take business
courses with particular relevance to technology. I learned about Bob s
intentions through a reference-check phone call from an entrepreneur-
turned-professor who created the new enterprises course at MIT in 1961 and
was mentor to manynone as worthy as Bob. The reference check went
something like this: "Ken, my course is oversubscribed by highly qualified
graduate students. Should I bend the rules to admit Bob?" I replied
without hesitation, "Dad, Bob s my Brother. I know he will take your
course seriously and will make you proud." What an understatement that
turned out to be !
Bob never let us down. Bob always honored Dick Morse as his mentor
and always gave other eager kids his time. Both our daughters careers in
life science were founded on term papers suggested by "Dr. Bob."
Travels with Bob: Many of us have special memories of traveling with
the Swansons- -usually involving the best culinary delights in elegant
places. I d like to mention some particularly special travel adventures:
Before China opened up, Bob and I found ourselves talking our way out
of a speeding ticket earned while racing from the Ming Tombs to a
xiv
dinner honoring Genentech at the Great Hall of the People.
Sailing out of Marseilles harbor on a self-crewed Quatorze Juillet
charter, we found ourselves in the middle of a yacht club of
nudists--in all shapes and ages.
Touring the fall colors of Vermont with Judy and 3-year-old Katie,
Bob and I hunted quail and pheasants with our special pal, Yaichi
Ayukawa, also an MIT graduate.
Celebrating German reunification with a visit to the castle "Sans
Souci," we clandestinely photographed the parquet floor pattern so it
could be copied for the Swansons pool house.
Through this history of Bob s life, from his early upbringing to his
later triumphs--as we take off our hats to Bob--I believe we should, each
in our own way, remember that his highest expectations were for himself.
He achieved more, loved more, and was more loved, in fifty- two years than
most of us can ever hope for. In that sense, we should try not to have
regrets, but rather to rejoice and give thanks for the life of our brother,
friend, and mentor, Bob Swanson.
Kenneth P. Morse
Managing Director
MIT Entrepreneurship Center
Cambridge, Massachusetts
September 24, 2001
XV
INTERVIEW HISTORY- -Robert A. Swanson
Robert A. Swanson at the time of his premature death in December 1999
was already an icon of the biotechnology industry. He was known widely as
the co-founder and former CEO and chairman of Genentech, an innovative and
far-sighted businessman, and the manager, mover, and motivator of a
pioneering company which served as model for a new industry. This oral
history takes Swanson off the pedestal, as he records in every-day
conversation his vision for and the challenges and early achievements of
the "gene-splicing" company which he and molecular biologist Herbert W.
Boyer founded in 1976. For perspectives on Swanson 1 s personality, beyond
what Swanson reveals in the oral history, the reader might turn to oral
histories in this series with close colleagues. David Goeddel, Thomas
Kiley, and others reflect on Swanson 1 s egalitarianism, motivational genius,
and occasional outbursts of raucous fun. His devotion to his wife Judy and
their two daughters, although not alluded to in this volume, is well known
to those close to him.
It would of course be impossible to document the history of the
biotech industry without including Genentech, the pioneer of an industry
yet in the making when the company was formed in 1976 by Swanson, the
venture capitalist from the firm of Kleiner & Perkins, and Herbert Boyer,
the molecular biology professor from UCSF. Likewise, it would be
impossible to write the history of Genentech without mention of Swanson.
For the first two years, the man and the company were virtually one and the
same. Of course, Herbert Boyer was in the wings having his substantial
say. But it was Swanson who was center stage developing the company on a
day-to-day basis. Even after the first few years had transpired and the
company seemed to have a promising future, Swanson--"Bob" as he was
universally known within the companywas the hands-on, walking-the-halls
executive who questioned, pestered, inspired early workers, such as
wunderkind David Goeddel, into peak performance. In some cases, the
results were spectacular. Press announcements of gene clonings and
expression of human proteins flowed for a time as though on cue--
somatostatin in 1977, insulin in 1978, growth hormone in 1979. By the
early 1980s, Genentech scientists were publishing in scientific journals at
such a rate that formerly skeptical academics were not only taking note but
reorganizing their research programs in order to compete. Both Swanson and
Boyer were adamant about giving the scientists full credit for these
successes. Nonetheless, institutional support organized by Swanson and the
business and legal experts he hired and the company s "Clone or Die"
philosophy played a part in the triumphs.
This oral history provides a detailed picture of Swanson 1 s plans for
the start-up company, his recruitment practice, and his research and
XVI
business strategies. For most, the challenges would have been daunting.
Swanson had to raise capital, attract scientists proficient in the new
genetic technologies, sell R&D contracts to pharmaceutical companies
dubious about the commercial viability of recombinant DNA, maneuver an
uncharted course through intellectual property protection in biotech, and
so on. While Swanson held science as fundamental to the corporate
enterprise, his ultimate goal was to build a successful company a FIPCO
(Fully Integrated Pharmaceutical Company). To do that, he had to learn to
understand, appreciate, and incorporate (literally) both science and
scientists. In his primary focus on business, Swanson was a good foil for
Boyer who as a UCSF science professor understandably felt more at home in
making decisions regarding science. The oral histories of the two co-
founders can be taken as loose elaborations of the intersecting circles
that Swanson and Boyer loved to draw to illustrate the interrelationship of
science and business at Genentech.
Another aspect of Swanson s strategy was from the start to aim at
producing Pharmaceuticals, not merely to sell research and development
contracts. This approach targeted at producing a marketable product is
clear in Genentech s very first project. As Swanson and Boyer chronicle in
their respective oral histories, Swanson wanted to launch the initial
industrial application of recombinant DNA by going straight for human
insulin, for which there was a potentially enormous market. He was with
some difficulty overruled by his scientists who insisted that the hormone
somatostatin was a more appropriate target upon which to test whether
bacteria could be genetically programmed to produce human proteins to be
sold as pharmaceuticals. Swanson carries the reader through the ebb and
flow of this initial project as he saw the company s fortune and his own-
fall and rise along with the science. The team s announcement of the
successful expression of somatostatin in 1977 indicated the promise of the
new approach to drug production and encouraged others to found or join
companies based on biotechnology. It also was a landmark in the
accelerating commercialization of the biological sciences premised on the
new technological capabilities of molecular biology.
The Oral History Process
Five interviews were conducted in 1997 in Mr. Swanson s office at K&E
Management in San Mateo, California, a few miles south of Genentech and
within easy reach of the high technology companies with which his new
venture capital company conducted business. He greeted me affably and
after preliminaries entered easily into the rhythm of the interviews. His
assistant had already assembled biographical material and all but two of
Genentech s annual reports. After the first interview, Mr. Swanson
suggested that I obtain copies of early business plans for use in the
xvii
interviews. So before our next session, I visited the office of the Chief
Financial Officer and obtained them. Also at Mr. Swanson s suggestion, I
researched company newsletters in Genentech s Corporate Communications
division. I am grateful to the Genentech staff who assisted my research.
The plan is that these and other Genentech documents will over the years be
deposited in the Bancroft Library, forming the nucleus of an archival
collection on the biotech industry and a valuable accompaniment to the oral
histories.
Mr. Swanson gave every sign of enjoying the interviews but after five
sessions called a stop. The pressure of establishing his new business,
interspersed with frequent trips to Boston, were his reasons for halting
his story ten years or so into Genentech s history. After that date, the
reader should turn to other interviews in this series which carry the
history closer to the present. The transcribed interviews were sent to Mr.
Swanson in October 1997 for review and approval. By the time he started to
review, he had been diagnosed with a brain tumor. Nonetheless, he
persevered between radiation and chemotherapy, managing to review about
forty pages before his illness made it impossible to continue. With Judy
Swanson s approval, Thomas Kiley, former general counsel of Genentech and
an early colleague of Swanson, offered in 2001 to speed the project along
by adding Swanson s changes and finishing the editing. Footnotes added by
Mr. Kiley are identified in the text as his. I am very grateful for his
help. Mrs. Swanson received the edited transcripts and invited Kenneth
Morse and Arthur Levinson to write introductions. I thank them all and
wish particularly to acknowledge Kathy Zvanovec-Higbee for shepherding this
project to completion.
The Regional Oral History Office was established in 1954 to augment
through tape-recorded memoirs the Library s materials on the history of
California and the West. Copies of all interviews are available for research
use in The Bancroft Library and in the UCLA Department of Special
Collections. The office is under the direction of Richard Candida Smith,
Director, and the administrative direction of Charles B. Faulhaber, James D.
Hart Director of The Bancroft Library, University of California, Berkeley.
The catalogues of the Regional Oral History Office and many online oral
histories can be accessed at http://library.berkeley.edu/BANC/ROHO. Online
information about the Program in the History of the Biological Sciences and
Biotechnology can be accessed at http://library.berkeley.edu/BANC/Biotech/.
Regional Oral History Office
The Bancroft Library
October 2001
Sally Smith Hughes, Ph.D.
Historian of Science
xviii
Robert Arthur Swanson
Born November 29, 1947, Brooklyn, New York
Education
Alfred P. Sloan School of Management, MIT, Master of Science in Management, 1970
Massachusetts Institute of Technology, Bachelor of Science in Chemistry, 1970
Corporate Experience
Citicorp Venture Capital, 1970-1974
Kleiner Perkins Caufield & Byers, 1975-1976
Genentech, Inc.
Co-founder, President & CEO, 1976-1990
Chairman of the Board of Directors, 1990-1996
K&E Management, Ltd., Founder, Chairman & CEO , 1996-1999
Selected Awards
Entrepreneur of the Year, Recipient 1981
(Awarded by the Research Directors Association of Chicago)
Entrepreneur of the Year, Recipient 1983
(Awarded by Stanford Business School Alumni Association, Peninsula Chapter)
Distinguished Entrepreneur of the Year, Recipient 1993
(Awarded by Babson College)
Exemplary Leadership in Management Award, Recipient 1997
(Anderson School of Business)
National Medal of Technology, Recipient 1999
Biotechnology Heritage Medal, Recipient 2000
(Posthumously Awarded by the Biotechnology Industry Organization and the Chemical Heritage
Foundation)
Royal Swedish Academy of Engineering Sciences, Appointed Member
Board Affiliations
AGY Therapeutics, Chairman of the Board of Directors
Chemdex Corporation, Member of the Board of Directors
Fox Venture Partners (Formerly Flag Venture Partners), Advisory Board Member
Genentech Foundation for Biomedical Sciences
Geron Corporation, Member of the Board of Directors
Harvard University Faculty of Medicine, Member of Board of Fellows
Memorial Sloan-Kettering, Member of Board of Directors
MIT Entrepreneurship Center, Founding Board Member
Molten Metals Technology, Member of Board of Directors
San Francisco Ballet, Member of the Board of Trustees
XIX
Robert A. Swanson, p. 2
Board Affiliations (continued)
San Francisco Museum of Modern Art, Member of the Board of Trustees
San Jose Tech Center/Technology Center of Silicon Valley, Member of the Board of Directors
Techno-Venture Co. Ltd., Member of the Board of Directors
The Nueva School, Member of the Board of Trustees
Tularik Inc., Chairman and Member of Board of Directors
Other
Panel on Advanced Technology Competition, National Academy of Sciences (1982)
Advisory Committee to the Director, National Institutes of Health (1985)
Memberships
American Association for the Advancement of Science, Member
American Chemical Society, Member
American Society of Microbiology, Member
Chief Executives Organization, Member
MIT Club of Northern California, Member World Presidents Organization, Member
Young Presidents Organization, Member
INTERVIEW WITH ROBERT SWANSON
I CHILDHOOD, EDUCATION, AND EARLY CAREER
[Interview 1: October 28, 1996] If 1
Family
Hughes: Mr. Swanson, let s start with where you were born and educated.
Swanson: I was born in Brooklyn, New York, and I grew up in Miami Springs,
Florida. My father worked for Eastern Airlines, and they moved
their headquarters to Miami in 1950 when I was three. I grew up
in a small town near the airport, and my dad [Arthur J. Swanson]
was an airplane electrical maintenance crew leader. He worked
shifts. We both loved baseball, and he always spent time
coaching Little League. It was a nice environment to grow up in.
Both my parents had been to a year or two of college. My
father had gone a couple of years to Pratt [Institute] at night,
and my mother [Arline Baker Swanson] had an aunt that financed
one year at Skidmore. It was everyone s goal that I would be the
first in the family to complete college.
Hughes: Were you an only child?
Swanson: Yes.
Hughes: So from early days, you were headed for more, in their eyes?
Swanson: Right. Our family had a philosophy that each generation would do
better than the last.
ended.
# This symbol indicates that a tape or tape segment has begun or
A guide to the tapes follows the transcript.
Education
Undergraduate ,
1970
Massachusetts Institute of Technology, 1965-
Swanson: I was interested in science, and we all hoped that I would get
into MIT [Massachusetts Institute of Technology] , which was my
first choice. Luckily, I was accepted [1965]. I was planning to
be a chemist and in fact wound up getting an undergraduate degree
in chemistry. At the end of my junior year, I interviewed for
and got a summer job working for a chemical company, Hercules in
Wilmington, Delaware. I enjoyed the work in the Materials
Science Division of their research center, which was really the
first time I had worked in a laboratory. It was a great learning
experience and I discovered a lot about myself. One of the
things I discovered was that I enjoyed people more than things.
So I said, "Gee, this probably isn t going to be what I d want to
do all my life," although I did enjoy that summer.
I came back to MIT for my senior year, and that year they
had made optional the thesis requirement for a chemistry degree.
So what I wound up doing was petitioning MIT to start the first
year s courses at the [Alfred P.] Sloan School of Management at
MIT for a master s degree, and they agreed. I wound up getting
both degrees at the end of five years. It was the time of the
Vietnam War and that extra year at MIT meant not having to go to
Vietnam. Technically, I was in the class of 69 at MIT, but I
actually got both degrees a year later in 1970.
Alfred P. Sloan School of Management, MIT
Hughes: What prompted you to think of business as an addendum to your
chemistry?
Swanson: I don t remember exactly what it was. But I did know I wanted to
work with people. I thought, well, okay, business is dealing
more with people, and why don t I give it a try? I believe most
of us follow a zig zag path to wind up where we are.
At one point when I was doing chemistry, I thought I might
want to be a doctor. One of my fraternity brothers, C. J. Davis,
who s now a world-class emergency medicine doctor, would drag me
off to the emergency rooms. I remember being in Boston City
Hospital after midnight one week. It seemed pretty impersonal,
lots of slap em together, sew em up, and get em out. This was
a little tough for me. So I thought maybe I wasn t cut out to be
a doctor. It was probably too tough a test. In retrospect, I
cycle back to the fact that I started a company that develops
drugs. I don t know exactly where these tendencies come from,
but I did wind up sneaking in the back door of the health-care
business.
Hughes: What did the curriculum at Sloan provide? I assume that there
were some ties with what you were going to do some years later at
Genentech.
Swanson: Being an undergraduate at MIT obviously provided a lot of
exposure to science and engineering and a familiarity with
chemistry. I learned not to be afraid of science or very complex
problems. Probably the two most important things that came out
of those early years were one, tackle things one at a time and
two, how to manage your time. At MIT more than any other place
there was much more to do than you could ever get done, and it
often involved deciding which subject wouldn t get studied that
week, and there were only four courses per semester! So it was
more challenging to an undergraduate than many other places.
Actually, one of the things I m proudest of is that I started
with a B, two C s, and a D. I had the highest D, but it was
still a letter of the alphabet I had never seen before on a grade
slip. But I did wind up with all A s, so I was very proud. It
was a battle, but I managed to win. I even won the chemistry
award my senior year.
Hughes: Some of your success was because of learning how to prioritize?
Swanson: Part of it was that and just getting in the flow. I had gone to
a big public high school [Hialeah High School]; we had 1,100 kids
in our graduating class. It was a good education, with honors
programs and such, but MIT was still a big jump. So part of it
was that. The other thing was not to be afraid of science, that
you could dig in and understand it. And it also got translated
later into saying, well, if you re an interested, intelligent
person, people that are experts in a field should be able to
explain something to you so you can understand it. And if they
can t, then they don t understand it themselves.
So I used that very much in business, because even though I
had only a bachelor s degree in chemistry and really had no
molecular biology or anything of that kind, I would expect people
to be able to explain the science to me in a way that I could
understand. Obviously, the technical aspects were much more
complex and the doing of it was more difficult, but the basics of
all these things have to be understandable. So those two things
were important.
As I got into business school, there were two things that
excited me. One was the idea of developing new products and how
an idea got generated and finally turned into something tangible
that people bought. I was studying marketing and new product
development. The other area that was the most interesting and
helpful to me was organizational development. It was the whole
process of how do you build teams of people to achieve things,
climb mountains, whatever it is that needs to be done? Those
were my main interests of business school.
Hughes: Were those regular parts of the curriculum, or did that involve
some choice on your part?
Swanson: Everyone got a taste of all the disciplines --marketing, finance,
and so on. But as I went on to the second year, marketing and
organizational development became my focus.
And then things changed when I took one course, which was
called Introduction to New Enterprises. It was taught by a
fellow named Dick Morse, who was too become a mentor. He along
with Bing Crosby had started Minute Maid orange juice. Morse was
an entrepreneur who was not a professor, but at that time he was
the center of entrepreneurship at the Sloan School, and he taught
this one course. It was limited to sixteen people once a year,
half from Harvard Business School and half from the Sloan. The
course focused on how companies get started, how they get
financed with venture capital, and how to put together your own
business plans. During the course we met with local venture
capitalists, learned about that business, and studied the
development of a rapidly growing local company. We picked
Thermoelectron, which George Hatspoulos had started. At the end
of the course, in teams of four people, we had to put together
our own business plans.
Hughes: Was this an unusual assignment?
Swanson: I think it was very unusual at the time. It s now become very
popular. Stanford and Babson [College] and many other places
have entrepreneur courses. But at the time, Dick Morse was
definitely leading the way.
On my last trip to Boston the end of last week I visited the
MIT entrepreneurial center. Ken Morse, who was my a fraternity
brother and Dick Morse s son, is now in charge of the
entrepreneurial center. I gave the speech kicking off their $50K
competition. The idea is to get scientists and business people
together to create business plans and award $50,000 to the
winning team. It was nice to see it go full circle. Ken was one
of the founders of 3COM. His office is in almost the exact
location as his father s.
Early Career
Citicorp Venture Capital, Ltd., 1970-1974
Swanson: I said, "Well, this course on entrepreneurship is really
wonderful. Here you ve got ideas going to products at the same
time you re building a company." So I asked Dick Morse, "Well,
how do I get involved in this venture capitalist stuff? This is
really exciting." He said there was a fellow named Phil Smith
who had just been given the job at Citibank to build a venture
capital group. He was hiring young, newly minted MBAs [master s
degree in business administration] . Among lots of interviews
about product marketing- -Procter & Gamble and Minnesota Mining
and others--! went down to New York City, and he hired me.
There were probably eight of us who were all pretty fresh
out of business school. We were given $100 million to invest
with Phil s guidance, and everybody learned a lot. The
scientists at Genentech later jokingly called it my postdoctoral
training. [laughter] But you know, it was a great overview of
others mistakes and successes. We actually made quite a bit of
money for the bank.
Hughes: Now, was that an unusual tack for a business to take, to give
neophytes a pot of money to learn with?
Swanson: It was very unusual, yes. Bank of America had a couple of people
that were doing that as well. Wells Fargo also had a few.
The government at that time had allowed banks a brief period
of time to set up SBICs [Small Business Investment Companies].
The timing was fortunate, and a small number of us got an
incredible opportunity to enter the venture capital industry. It
was actually the lowest job offer I received, but it was the job
where I could learn the most.
Hughes: And that s what appealed to you?
Swanson: Yes, I wanted to learn as much as I could about this area. Well,
banks don t pay anything, right? [laughter]
Hughes: What about contacts that you made at that stage? Did any of
those prove to be useful later on?
Swanson: Not of a major kind.
Venture Capital
Swanson: I started work at Citicorp Venture Capital in 1970, training and
learning and building my confidence. In 1973 I was chosen as one
of two people to come out to California to set up our West Coast
office. About a third of the money was invested in California.
Hughes: Why was that?
Swanson: Well, it s interesting how venture capital developed. For many
years it was centered around Boston and San Francisco. There are
other pockets that now have developed. The earliest venture
firms included Draper, Gaither & Anderson out here, and American
Research & Development back East, and just a few others. You had
financing available for companies and successful entrepreneurs
that somehow got started. Then that process continued. Dave
Packard was on my board for ten years helping me, and now I m on
other people s boards. Also, there was the motivation, Well, I m
as good as my boss is. Why don t I start something on my own?
And there was the money and infrastructure available to do it.
California, specifically San Francisco, and Boston were the
two centers. Philadelphia only recently is getting started. It
has good universities, wealthy individuals, but none of that
infrastructure. It probably all started with a number of the
wealthy families, the Rockefellers and the Whitney s . They
recycled their wealth into new companies in new areas.
The Rockefeller family invested not only in the oil
business, but they were one of the founding investors in Eastern
Airlines, which is another recycle. Captain Eddie Rickenbacker,
World War I flying ace, started an airlines, and he was backed by
the Rockefellers. They also started McDonnell-Douglas. They put
up risk money to back new industries. The same is true for the
Whitney family and others . That history has now become more
institutionalized, but these families continue to be regular
quality suppliers of capital. In fact, the Rockefeller family
was the original backers of Thermoelectron, and as part of my
Sloan School learning, I went down to meet the people who had
made the decision to invest in it.
Hughes: Is venture capitalism in California focused on Silicon Valley, or
is it more diverse than that?
Swanson: I don t know how I d do it in percentages, but in California, the
vast majority was always here in the San Francisco Bay Area, with
a sprinkling in Los Angeles, and now with biotechnology, in San
Diego .
Hughes: I mean before biotech. Is that what you mean?
Swanson: Yes, even before biotech. If you look at the Bay Area versus Los
Angeles, San Diego, you probably had 60 percent of the activity
herethese are very rough estimatesmaybe 30 percent in Los
Angeles and 10 percent in San Diego. Biotech has maybe brought
that up a little bit, but it s in the ballpark.
Hughes: The concentration of venture capital in this area is because of
Silicon Valley?
Swanson: I m not the best one to give you the history, but Stanford had a
policy of allowing people to own the rights to the research they
developed and to spin them out. Hewlett Packard was really the
beginning of it, and then the spinout of other companies. L.A.
had a lot of aerospace developments and other things, so there
was some activity down there. But the electronics piece of it
really was here, in part due to the university s policy. It was
very similar to the UC system where they have a policy to
encourage funding of research at the university. In fact, the
agreement that I set up with the UC Board of Regents in starting
Genentech was that we funded all the costs of the research,
including supplies and overhead, and in return got rights to any
patents that would come out, for the life of the patent. So
those kinds of interactions have been very strong in the Bay
Area, and I think that s why this has become a center of the
biotechnology industry.
Hughes: You came to California in--
Swanson: I had been with the bank from 70 on. I came to California in
1973. Then Phil Smith, my New York boss who had come out of the
Far East, said, "That is where all the activity and opportunities
are, and we d like to promote you to go to Hong Kong." I said,
"That s great, but I m not really a banker. I really enjoy
starting up companies."
Hughes: Why did that appeal to you?
Swanson: Well, as you go through life, you learn more about yourself, and
I ve discovered that I m happiest when I m building something.
I ve never been good at building things with my hands, but I get
excited about the whole idea of creating something where there
wasn t anything before and having it be something good. Even
now, what gets me most excited is working with an entrepreneur
who s going to change the world, and he says, "Well, gee, how
should I think about..." And so I can be a sounding board for
his ideas. That s a lot of fun.
8
Banking in Hong Kong would have been a good career choice if
you wanted to be a banker, but it wasn t for me. If that
opportunity [to found Genentech] hadn t come, I probably would
have continued doing what I was doing for a while.
Hughes: Risk isn t a consideration? Many people would have chosen the
Hong Kong offer because it led to a secure position with chances
of advancement. You took a risky course, at least in comparison.
Is that valid?
Swanson: Yes, I would guess so. One of the things that had a big impact
on my decision was, I had been working at Citibank maybe a year
or two, and one day they fired 200 vice presidents. They were
all in the transaction part of the business, where there were two
billion checks coming over the wall every day, and they hadn t
geared up the computer systems to deal with them. Admittedly,
they hadn t done a good job, but a lot of these employees had
been there twenty years. So I said to myself, Well, gee, this
isn t the way to build loyalty in an organization. Maybe there s
early retirement; there are better ways to take care of people.
Obviously you ve got to do something about solving the business
problem, but you ve got to take care of people after that.
So it dawned on me that you think about a bank as a secure
business environment, but really there s no security unless
you re producing more than you re taking home. If you re doing
that, then you have security wherever you are. Sometimes that s
easier to say than it is to do. The decision about Hong Kong was
easy for me; I was single, had nobody to take care of but myself,
so there was just no question; I wasn t going to Hong Kong.
I just had a chance to use that example with one of my
entrepreneurs whom I ve been working with. He s going through a
difficult patch. He was saying, "Well, I have to lay off
people." I said, "Try your best to avoid that. Obviously, the
company has got to continue to survive. If you can deal with the
issues by moving people from one project to the other, or raising
performance standards and saying, Gee, okay, you were a good
performer; now you need to do this well or you can t stay, it s
much better for the company, because you lose an incredible
loyalty otherwise. You ve made some mistakes, or the world has
changed, or things are always difficult, but then somehow the
little guys at the bottom suffer for it. And that s not good."
Partner, Kleiner & Perkins Venture Capital, 1975
Swanson: One of the lucky things that happenedit didn t seem lucky at
the time, but I ve always been a very lucky person- -was most of
the people on the West Coast had made an investment in a company
called Antex, and it went south very quickly. The company was
making light-emitting diodes and went into bankruptcy very
shortly after the initial investment was made. Two people worked
to try and get some money out of it, and one was myself and the
other was Eugene Kleiner of Kleiner & Perkins, which has now
become Kleiner, Perkins, Caufield & Byers and is probably one of
the best known venture capital firms.
With that, I got to know Eugene Kleiner, and so when the
opportunity to go to Hong Kong came and I wasn t going to take
that, I went to talk to him about the potential of joining their
firm. As fortune would have it, they had two partners, Jim
Treybig and Jack Loustaunau, who were spinning off in 1974 to
start a company called Tandem Computers, which became a very
well-known and substantial computer company. So there was an
opportunity for me to join Kleiner & Perkins, with the idea that
at some point I might be able to do the same thing. So this was
very interesting and exciting, because I was beginning to have
self-confidence in my decisions and judgments about business
issues--
Swanson: --to try starting a company on my own. Some of the Sloan School
students have asked, "How did you know you were ready to do
this?" I said, "You know, it s a very frustrating thing, because
no one can tell you when you are ready." I remember before I was
married, I would ask people who were married, "Well, how do you
know this is the right person?" And it always came back, "Well,
you just know." [laughter] And you say, "Gee, that isn t a very
satisfactory answer." It was the same kind of thing: when do you
know you re ready to try it on your own? The answer becomes,
well, you just know.
Hughes: And you did.
Swanson: At the end of 1975, after I had been working with Kleiner &
Perkins a year, I became ready to try and do something like this.
Hughes: Was there an event that encouraged you to take off on your own?
Swanson: When Treybig and Lousteneau spun off, they actually had to raise
a good part of their money themselves before Kleiner & Perkins
put any money in, and eventually they did. A very similar thing
10
happened to me, because at the end of 75, Kleiner and Perkins
said and this is the triggering event--"Gee, we d like to have
just the two of us working here." Which meant that at the end of
75, I wouldn t have a job. So talk about environmental factors
that give you motivation! [laughter]
Hughes: They were senior, so they could make that decision?
Swanson: Right. Their names were on the door, Kleiner & Perkins, and
clearly I was very much the junior partner, as were Treybig and
Loustaneau. They said, "You can continue to have a desk and a
telephone until you find what you re going to do." But there is
nothing like that to give you motivation.
Hughes: Why do you think they came to that decision?
Swanson: I don t know. At the time, I thought, Well, maybe I m not very
good. It made me think, Maybe I m being fired. What eventually
I ve come to understand, because they did make the investment in
Genentech, was that there was something going on between the two
of them, and they wanted to work it out on their own. About a
year afterwards, they figured that really they needed some more
people, and they finally hired [Frank] Caufield and [Brook]
Byers, and then they started growing.
Job Hunting, 1975
Swanson: So what triggered this was, I needed to get a job. I was
interviewing a lot of people, from large companies like Intel,
where I could get some operating experience before I went out and
started on my own, to lots of smaller companies. I probably had
three interviews a day for three or four months . This was a
pretty scary period.
Hughes: Yes, I can imagine. Was there any particular sector that you
were concentrating on?
Swanson: No. I probably was more technology-oriented.
Hughes: Because of your background, or had that become an interest of
yours?
Swanson: Well, why is technology interesting? It allows you to have a
unique competitive advantage over somebody else. There are other
advantages you can have. But this is one area in which, if you
come up with something unique, you patent it and you move
11
quickly, you have a chance to be very competitive. So it lends
itself to building companies.
12
II GENENTECH, INC.
Attempts to Create Interest in Recombinant DNA Technology
Cetus Rejects Swanson and Recombinant DNA Technology
Swanson: During the year [1975] that I was at Kleiner & Perkins, there was
a U.S. government law passed that became known as the Prudent Man
Law. I believe it said that pension and certain other funds
couldn t invest in private companies, or it somehow made it much
more difficult for institutional money to be invested privately.
I don t remember the full details.
Well, Cetus had been formed by that time by Don Glaser and
Ron Cape and Pete Farley. They had an automated system for
screening microorganisms so that if you were looking for one that
produced more of an antibiotic, they d put their whole mechanized
system to the task of doing that. They had an automated system
for what people had been doing by hand.
We got a call at Kleiner & Perkins saying that one of their
institutional investors had to sell. So Eugene Kleiner and Tom
Perkins and I went out to Cetus to look at it. Ron Cape showed
us all the screening technology, and at the end of that day we
said, "Well, this seems like a reasonable thing." So we bought
the shares from the institutional investor and became an investor
in Cetus.
Hughes: It was in Emeryville [California]?
Swanson: Yes.
So that had happened at the end of 1975. Moshe Alafi, who
was the chairman of the board of Cetus, was an old friend of
Eugene Kleiner. So as I was going through the question, what am
13
I going to do?, one of the things I got interested in was this
technology. Cetus at that time was saying, "Look, we re doing
this microbial screening system now, but this recombinant
technology is coming along and is going to be wonderful stuff.
You re going to be able to make insulin and other hormones."
Hughes: Cetus wasn t yet using recombinant DNA technology, right?
Swanson: Right, they weren t.
Hughes: Why, if they thought it was so wonderful?
Swanson: I m going to tell you; I m going to tell you. [laughter] So
with the introduction from Eugene to his friend the chairman, I
went over to see Ron Cape, and we had an interview, and I said,
"It seems this new technology that you talked about is going to
be really exciting, and I d like you to hire me to do it." It
had germinated for a while, and I said, "God, this feels like
important stuff."
Hughes: Had you done any reading?
Swanson: I read a number of papers. I was doing a lot of interviewing for
jobs those days too. [laughs] The question was, What am I going
to do? And I looked at everything from joining Intel to a
Stanford professor had a way of concentrating radioactive waste.
I guess Cetus thought about it and they said, "No, we re not
going to hire you. We think this technology is going to be
wonderful, but it s not going to happen for a long time. It
wouldn t be fair to hire you and wait for it to happen."
Hughes: Did they give you any reasons why they thought it was a long time
off?
Swanson: None that I really remember or that made any sense. Now, you
never know, maybe they were being polite but thought, Well,
you re a jerk; we don t want you. [laughs]
Hughes: Cetus didn t use recombinant DNA technology for a while.
Swanson: They didn t do it for a long while.
Approaching Scientists
Swanson: So this possibility [of commercial application of recombinant
DNA] started germinating while I was having all these other
14
interviews and trying to figure out what I was going to do. I
said to myself, This is really an important event, and wouldn t
it be wonderful if you could really use microorganisms to make
these products? And why is it that it can t be done today? So I
started calling people cold on the telephone, and you read in the
speech that I called Boyer. 1 But I called to a lot of people. I
went down to Syntex to their new business development group and
said, "What do you think about this stuff?" And Syntex replied,
"It s great, but it s not going to happen for a while." They
were not working in the area. I talked to other professors, and
I don t even remember who.
Hughes : You were calling these people blind?
Swanson: Yes, I just picked up the phone.
Hughes : Can you generalize about how people responded?
Swanson: Well, some people didn t want to talk, but most people were happy
to talk.
Hughes: Did most people know about the technology?
Swanson: Well, the people I was calling were people whose names were on
[published] papers.
Hughes: You made several contacts before Boyer?
Swanson: Yes, I think so.
Hughes: Boyer told me that he thought you had an alphabetical list which
he believed you had derived from the people associated with
Asilomar [Conference on Recombinant DNA Molecules, February
1975. ] 2 He concluded that you must have talked to Paul Berg, and
that he [Boyer] was probably number two on the list.
Swanson: I don t remember. But Boyer was near the beginning.
Hughes: Was it an alphabetical list?
[Robert Swanson], "Stanford Speech," Acceptance of Entrepreneurial
Company of the Year Award, Stanford Business School, 1983. (Copy of draft
courtesy of Robert Swanson.) See Appendix D.
2 See: Herbert W. Boyer, "Recombinant DNA Science and Its
Commercialization at Genentech," an oral history conducted in 1994 by Sally
Smith Hughes, Ph.D., Regional Oral History Office, The Bancroft Library,
University of California, Berkeley, 2001.
15
Swanson: No, I don t think it was. But the fact that he was close, and
some of these guys were far away, was important.
I went to a couple of conferences, and I don t remember
which ones. I remember going to an MIT conference and being very
impressed with Phil Sharp and wanting to get him involved, but I
don t know what the timing of that was. He gave one of the
lectures there and I said, "This guy is really good."
Hughes: You mean you re not sure if this was before you founded
Genentech?
Swanson: I don t remember.
Hughes: You were flying around the country?
Swanson: No, I was mostly using the phone. It was almost all local. I
think that this MIT conference was later. It was after Boyer.
Hughes: How did you get the names? Were you reading scientific articles?
Swanson: I got some papers, and I was looking at the names at the end of
them, as the leaders. I started locally. I m sure the MIT
conference was later, now that you mention it. It was Stanford,
UCSF, and I think I may have made some calls to L.A. or Santa
Barbara. Somebody was doing yeast work in Santa Barbara. Was it
Donald Helinski? I don t remember who was there, and I don t
even know if I did call. But it was local, and Boyer was one of
the first, and he was close. So what happened is that when I
finally got a chance to talk to Boyer, and we were very
compatible, some of the names later on my list never did get
called.
Hughes : Do you remember if you talked at that early stage with Stan
Cohen?
Swanson: Well, he was an advisor to Cetus, and I don t think I talked to
him. I m not sure. I don t think I did.
Foundation and First Years of Genentech
First Meeting with Herbert Boyer, January 17, 1976
Hughes: You give in one of your papers a precise date for your first
meeting with Boyer, namely, January 17, 1976. Why does that
precise date stick in your mind?
16
Swanson:
Hughes :
Swanson:
Hughes :
I don t know. It was a great meeting. It was so incredibly
lucky to find Boyer and have Boyer be the person that he was.
How was he over the phone when you first called?
"I
He was very polite and nice. He said he was busy. I said,
really need and want to talk to you. I think that this
technology could be commercialized." He said, "Well, I think
probably." A lot of the people I had talked with weren t at all
thinking that it could be done. He finally said, "Well, come by
on Friday afternoon; I can spare you ten minutes." And then I
did that.
So he was interested, at least in a peripheral way? This wasn t
a way of politely dismissing yougive old Bob ten minutes and
that will take care of him?
Swanson: He wouldn t have let me in the door if he wasn t interested a
little bit. In looking back, he said, "Here I had the U.S.
government funding my research for so many years in this area,
letting me follow my nose in what I like to do. Commercial
application would be an opportunity to give something back and
see the real benefits come of this research." I think that s
part of what drove him in those days.
Targeting Insulin as a Product
Swanson: We talked about the ideas, and Herb got enthusiastic, and I did
too. I asked myself, How do we decide what product we make?
There was a woman, Margaret Dayoff , who had written a book on
protein structure. It was just coming out. Herb said, "Gee,
we re going to probably need the protein structure in order to
produce proteins." So I went through her book, trying to see
what proteins were known in terms of their of structure that
would be interesting economically to make. The obvious one that
popped to the top of the list was human insulin.
Hughes: Why?
Swanson: It had a large existing market. Diabetics were getting pig or
cow insulin that was extracted from the pancreas glands of cattle
and pigs that were slaughtered. I put together some lists of
criteria in terms of products to go after, and one of the things
you didn t want was to have a missionary marketing problem. Once
you had succeeded in overcoming the technical hurdles, it should
be pretty obvious that recombinant human insulin would be better
than pig or cow insulin.
17
Hughes: You didn t want to have to go out and create a market.
Swanson: Right. There were too many other risks involved. Bill Hambrecht
of Hambrecht & Quist, a local investment bank, has said the only
common characteristic he has noticed in the successful
entrepreneurs he s invested in has been that they re all
basically conservative. This is an interesting comment, because
they re willing to go for it, but everyone is looking at how you
minimize the risks as you re doing so. How do you cover the down
side? Stuff is going to happen, I know; how do I make sure that
I can protect myself when it does happen? And so looking for
what product to develop, I thought, Okay, how do I pick something
that minimizes the risks?
The first business plan has some of this. 1 We asked, could
you do it economically? Herb and I said, "Which protein does E.
coli make the most of and what percentage of the cell weight is
it?" So we looked at that; I don t remember what he came up
with. But we said, "Well, look, it wouldn t be unreasonable if
the E. coli produced 5 percent of its total protein weight in a
particular protein." So then we ran some rough numbers of how
much it would cost you to grow it up at laboratory scale.
Then Herb said, "Okay, so this is your basic raw material
cost if you succeed. Now, what are companies in the insulin
market doing now? They re getting pancreas glands." So I called
the American Meat Institute and said, "Okay, what do pancreas
glands sell for?" He said they were a dollar-fifty or dollar-
seventy-five a pound. And then Eli Lilly had in their annual
report that it took 8000 pounds of pancreas gland to produce a
pound of insulin, and they put the gland in one of these big
presses and squeezed it.
And so we looked at this. We said, "You know, we re close.
We ought to be able to do it for less, but at least we re in the
ballpark." And we believed people would rather have human
insulin than pig insulin. So we said, "Okay. As best we can
tell today, there s a big need." Lilly was selling $400 million
worth of insulin a year. It s a small molecule; it was probably
somewhat technically feasible based on what we knew. The
economics looked pretty good. If we did it, it could be
patentable. I don t know; we probably had a list of other
criteria that we looked at in trying to decide.
Hughes: You created the list, or you created it jointly?
Swanson: I did it.
[Robert Swanson], "Meeting, Stanford Office of Technology
Licensing," April 19, 1976. (Chief Financial Officer files, Genentech,
South San Francisco, California.)
18
Choosing to Synthesize DNA in vitro
Hughes: It was oriented towards the business feasibility of this project,
right?
Swanson: Right. And then I would come back to Herb and we d talk about
the scientific feasibility. And his brilliant call in those days
was that Axel Ullrich and Howard Goodman and everybody were
working on cDNA [complementary DNA] technology, but it wasn t
working yet. Nobody had really done any cDNA cloning. They had
bits and pieces. Herb said, well, he had just collaborated with
Arthur Riggs and Keiichi Itakura at City of Hope Medical Center
[Duarte, California], and Herb said, "Well, this insulin molecule
is small enough; these guys are synthesizing DNA."
When I met Herb in January 1976, he showed me a paperit
was a preprintwhere he and Riggs and Itakura had collaborated
to show that synthetic DNA was readthe bacteria couldn t tell
the difference between chemically synthesized DNA and DNA. 1 So
the synthetic DNA was just a segment put in there, and I think it
was just replicated like everything else. It was a segment of
the lac operon or something like that; I don t remember the paper
exactly.
In my way of thinking, it was the last piece of the puzzle
you needed to have in place before you could begin tackling the
next problem, which was, Can you get a microorganism to make a
human hormone or not? And so Boyer correctly said, "Well, let s
go with the technology we know works [in vitro DNA synthesis]."
We could have gone for the cDNA, but its technology was under
development, and maybe it develops three months, maybe it s six
months. But you didn t know, though we still were keeping track
of that. We said, "But we can chemically synthesize these
genes." Then we devised a whole strategy of building and
combining the overlapping DNA strands that make them up.
Hughes: Now, to bring in the larger context, the recombinant DNA
controversy was happening at this time. RAG, the NIH Recombinant
DNA Advisory Committee, established safety guidelines for
recombinant DNA research but they didn t cover synthetic DNA.
Was it in your thinking, we can do this chemical procedure
without having to worry about the NIH guidelines?
H.L. Heyneker, J. Shine, H.M. Goodman, H.W. Boyer, J. Rosenberg,
R.E. Dickerson, S.A. Narang, K. Itakura, S. Lin, A.D. Riggs, "Lac operator
DNA is functional in vivo," Nature 263, no. 5580 (1976): 748-52.
19
Swanson: Most of the decision--99-plus percentwas based on the technical
aspects. You say, "Okay, depending on how some of these things
work out, at least we re probably safer than other people by
using this synthetic DNA approach because we know exactly what
we re making." At that time, there was risk in cDNA cloning of
getting something in there they didn t know about. So it wasn t
related so much to the guidelines. Rather, it was the argument
well, you re chemically synthesizing this little DNA segment, and
it has to then get linked to this overlapping segment. So when
you re finished with this, you know pretty much exactly what
you ve got. So the decision was related principally to that
aspect .
So I went to the library and I generated all these different
ideas.
Hughes: Your major responsibility in this partnership was to weigh the
feasibility of the economics, and Boyer was handling the science?
Swanson: I went to the science library to dig up all the potential ideas,
and then I d come back and we d talk about which was feasible.
But you very quickly got to human insulin, right? There were not
a lot of other choices. There were other things that might be
interesting, but insulin is fifty- two amino acids, small enough
that you could practicably synthesize it.
The chemical synthesis of the DNA was the judgment call that
Herb made, correctly in terms of the technical side. The whole
planlet s do human insulin, let s do the analysis of how we do
it, and the spreadsheets in terms of how many dollars, how many
people, and other things --is what I did.
On April 7 of 76, we each put in our $500 and incorporated
Genentech.
Hughes: Because you thought insulin was doable? As simple as that?
Swanson: Yes.
Committing to the Foundation of Genentech
Hughes: You thought a company might have a chance of actually making this
product?
Swanson: Well, I m glad you stopped me. During this same period, I was
still doing a lot of interviewing. I was running around and
interviewing because I needed to get a job. Finally I said to
20
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Swanson:
myself, Should I do this or not? The answer is--and I often
recommend to other people to use this as a tool for making
decisions because it incorporates all the logic as well as all
the emotionlook at yourself as an old man or woman, say,
eighty- five. Looking back over your past life, what would you
want to have accomplished? And for me, the approach integrated
everything and it said, "Look, I think this is important. If I
don t do this, I m not going to like myself so much for not
having given it a shot." So that was what made that decision.
That s rather remarkable at age--twenty-eight?
Yes, I was born November 29, 47.
What about Herb? Why did he decide to do this?
position at the university.
He had a secure
He s always said he wanted to give something back, and I think
that s part of what it was. I think he wanted to see some of the
science he was doing be of value. I don t think he ever thought
about making money. I don t know, maybe he did.
Did you?
Well, mostly building a company. I wanted a job. [laughs] But
it was mostly building a company and doing something important.
We had a conversation about who would own what. I said, "Look,
Herb--
n
--we re a team. That s what it s going to take to build- this
company. And yes, Herb was critical for getting the scientists;
he was absolutely critical for the technical decisions. He said,
"Well, now, one of the things we have to do right away is see
Riggs and Itakura; get them involved." But he was still
teaching. He was still doing his own research [at UCSF] . I was
really driving the research [at Genentech] as well as the
business part of it, in terms of, Okay, what has to happen? And
with the scientists telling me what needed to happen, then I
would make it happen. With Herb s brain, I was the driver on the
research as well. When we finally had the agreements set up at
City of Hope and Caltech, I would go down there and I d bring the
material up. [laughs] [tape interruption]
Maybe I should go back and look at the financial side.
Well, during these early months of 76, I had gone back to Eugene
and Tom and said, "Why don t you continue paying me a salary?
I m going to put this thing together." And they said, "No." So
I was a little unhappy with that. In retrospect, it was the
21
right thing to do, which was to say, "All right, you re a young
kid. Are you really serious about this, or is this just a
completely academic exercise because you re looking for something
to do?" As a result of that, during 76 I wound up being on
unemployment. I got $410 a month tax free. My half of an
apartment in Pacific Heights was $250. My lease payment on the
Datsun 240Z was $110, and the rest was peanut butter sandwiches
and an occasional movie, plus I had a little savings, not very
much at that time.
Financing
Hughes :
Swans on:
Hughes :
Swans on:
Hughes :
Swan son:
Hughes :
Swans on:
Had you been talking in some detail with Kleiner and Perkins
about this venture?
Well, I told them I was going to do this.
But not the ins and outs?
Not the details.
So you weren t going back to them as mentors and getting advice?
No, they had let me go.
I don t remember the exact timing, but I went out and
started raising monies from others. I had raised a good bit of
what we needed when Kleiner and Perkins said, "Well, it looks
like you re really serious about this, Bob. Why don t you come
in and make a presentation?" So Herb and I came in--it may have
been May of that year [1976], I don t know, but I think we had
our money by June. I know it was about six months that I was
without a job. [laughs]
Now, Kleiner and Perkins were hooked by the fact that you had
already raised X number of dollars?
Well, that I had a bunch of people interested,
in and presented our business plan.
Herb and I came
The First Business Plan, Spring 1976
Hughes: Did you have a business plan before you approached people other
than Kleiner and Perkins? Did the plan come first?
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
22
Oh, yes, a business plan had to be put together first.
Can you re-create the presentation to Kleiner and Perkins?
It was a simple business plan. 1 It talked a little bit about the
technology, and I remember I had some pictures of DNA and the
different coding sequences, and a little bit about being able to
synthesize DNA, and then what our goal was, which was human
insulin, and a little bit about why the basic economics of the
manufacturing process would work. And then how we d accomplish
the task, in terms of, we re going to need so many people and
these kinds of reagents and resources in order to do it. So it
was a pretty early-stage thing.
What did Herb say?
Well, Herb talked about the science,
we can do this [make insulin] . "
He basically said, "I think
How was Herb at translating complex science for laypeople?
Oh, he s very good. It turned out that we re very similar in a
lot of ways about our beliefs.
One of the things Herb always said was, "Well, we ve got to
give the junior guys the credit. They re doing all the work.
Don t put my name on this insulin paper." I had found the money,
and he had said, "This is what we ought to do," but insisted, "I
don t want to be on the paper. Here are the guys who did the
work; they should get the credit." And I had very much the same
philosophy from the business side, which is, you ve got to hire
very capable people and give them the opportunity to do their
thing, and give them the credit for what they re doing. So there
were lots of things in those early days where Herb let me go and
do it, and with his guidance on the science, I just drove it.
You had the business picture in mind, but you also had the drive?
I mean, you knew what had to be done to get where you wanted?
I was the one that was in a hurry. And I was putting together
schedules on how things would need to be done.
[Robert Swanson], "Genentech: Outline for Discussion, Kleiner &
Perkins, April 1, 1976." (Chief Financial Officer files, Genentech.)
Appendix B.
See
23
Obtaining Research Agreements
Swanson: That first year, our main goal was to get Riggs and Itakura on
board and get contracts with the University of California Board
of Regents and with Caltech. It turned out that Itakura had a
joint appointment with City of Hope and Caltech, so I had to do a
deal with Caltech as well as with City of Hope Medical Center. 1
It didn t make sense to me that we should fund, build, put money
into facilities for Genentech because nobody knew yet if the
science was going to work. Let s fund research at the
universities and get the rights to the patents. Everybody said,
"This [recombinant DNA technology] is going to be wonderful," but
nothing had happened yet. There wasn t any microorganism around
spitting out a human hormone or anything like that. So we said,
"Well, let s make sure that it will work before we invest in our
own facility. And of course, this was the perfect kind of
research for a university because it was proving something new.
Incorporation, April 7, 1976
Hughes: Were you calling yourself Genentech yet?
Swanson: Yes, because we had to have a name when we incorporated. I said,
"We re going to incorporate, Herb. We ve got to have a name."
The "Herbob" idea that I had was terrible [laughter], and Herb
came up with, "Why don t we call it Genentech?"
Hughes: The incorporation was--
Swanson: April 7, 1976.
Hughes: What had happened by that time?
Swanson: Well, at this point I had said, "Okay, this is what I m going to
do." I had eliminated all the other possibilities, and I felt
comfortable: Okay, I m going to go for this. We had
incorporated, and then I was out trying to raise money to get us
going.
The interviewer located a "Sponsored Research Agreement, effective
this first day of October, 1976, by and between Genentech, Inc., and
California Institute of Technology," (Chief Financial Officer files,
Genentech) but was unable to find an agreement with the City of Hope.
Collaborating with Arthur Riggs and Keiichi Itakura
Hughes: And Itakura and Riggs were going to cooperate?
Swanson: Herb has a better memory about this. But sometime in that period
we went down to see Riggs and Itakura to see whether they would
be part of this.
Hughes: Their participation wasn t a precondition for founding Genentech?
Swanson: I don t know when it happened. It probably happened before April
1976.
Hughes: Because otherwise, you wouldn t have known that the synthetic DNA
approach was possible?
Swanson: We knew that it was possible because of the paper Herb had
already collaborated with them on, the lac operon paper.
Hughes: But if you didn t get them to collaborate, were you prepared to
do it on your own, without Itakura and Riggs?
Swanson: Sometime in that time period, we went to visit them, and they
said they were interested.
Hughes: But the way you re telling it, it doesn t sound as though their
collaboration was a precondition for Genentech: "We ve got to
get Itakura and Riggs if we re going to make this company go."
Swanson: No, it was basically Herb in his way saying, "Gee, I ve worked
with them; they provide a part of this." Did we meet with them
in March or May? I don t know. We wouldn t have gotten very far
without having them on board. Both of us flew down there and
said, "Hey, this is what we re thinking about doing. Are you
guys interested?" And of course they were because they had just
proposed to the NIH that they try and get a microorganism to
produce the hormone somatostatin. They had been turned down on
their grant proposal because they said they would do it over a
three-year period, and the response was, "You re being too
aggressive. It s not possible to do that."
Hughes: Riggs and Itakura didn t hesitate to work with a company? As you
well know, in academic biology, a link with industry was
certainly not as common as it is nowadays, to put it mildly.
25
Swanson: Oh, well, hardly anybody would do it. Riggs and Itakura had made
their NIH proposal, and they had been turned down. Here we
wanted to do a very similar thing, and they said, "Here s free
money." I think they were enthusiastic about the project, and
they were heading in the same direction. The big risks were not
there. The big risk was the one that [Herbert] Heyneker took in
leaving the academic world to be a full-time employee of
Genentech. All the rest was, I m accepting some industrial
money; will my peers criticize me?
Hughes: Do you remember discussions of that kind with Itakura and Riggs?
Swanson: I don t remember. I m not the best at a lot of those details.
It was always an issue.
Seeking Scientific Consultants
Swanson: Somewhere there are signed consulting agreements from Rutter and
Goodman where they agreed to consult with us and got compensation
in stock, and then backed out because they couldn t stand the
peer pressure against being affiliated with an industrial
company. 1
Hughes: Where did those agreements come in the chronology?
Swanson: Probably during that year of 76. May have been 77.
Hughes: The reason you wanted Rutter and Goodman as scientific advisors
was because they were working on insulin?
Swanson: Well, of the group of people that understood what was going on
[in cloning research] at that point in time, these were the
leaders. I wanted to get the best advice we could.
Hughes: They cloned the rat insulin gene in 1977. 2
: The interviewer located agreements with Genentech, signed by Howard
Goodman and Axel Ullrich; no such agreement with William Rutter was
located. (Swanson to Goodman, April 1, 1977, Hormone Research Institute,
UCSF; Swanson to Ullrich, April 1, 1977, Chief Financial Officer files,
Genentech. )
2 For details of this achievement and the role of the UCSF Department
of Biochemistry in early recombinant DNA research and politics, see:
William J. Rutter, "The Department of Biochemistry and the Molecular
Approach to Biomedicine at the University of California, San Francisco,"
volume 1, interviews conducted in 1992 by Sally Smith Hughes, Ph.D.,
26
Swanson: Right.
Hughes: So everybody was still working on rat insulin?
Swanson: I don t know where they stood.
Okay, there was this competitive technology, cDNA cloning
technology. So I wanted to make sure that if it progressed, I
had access to that technology and to the leaders. And Goodman
and Rutter and Ullrich and [Peter] Seeburg were on the forefront
of that.
Hughes: So you were thinking, let s also get this other technology.
Swanson: Yes. Let s make sure we have people that really understand this
so that we know exactly where it stands.
I need to go back a little bit, because what happened is,
Riggs and Itakura convinced us that the first thing we should do
was somatostatin. They said, "Look, it s just going to be too
technically difficult to do insulin to start with. Let s make
somatostatin. It s smaller; we can do that one, and then based
on that demonstration, we ll have proven the technology. And
then we can go to the next level, and we ll have perfected
everything." I fought that like the devil because I always hated
the idea of doing a demonstration of anything. If you re going
to go for something, go for the real thing. But finally, Herb
and Art convinced me, and so we took that approach. So that was
the discussion in "76.
More on Obtaining Research Agreements
Swanson: At the same time, I was flying around setting up these
agreements. The first money was $100,000 from Kleiner & Perkins,
which bought 25 percent of the company at the time and lasted us
nine months. So that came in June, I think. The rest of 76, I
was setting up these research agreements with the City of Hope
and UC and Caltech, which took most of the year to do. UC was in
one sense easier because it prescribed exactly how it would go:
you [the company] fund all the cost of the research and overhead,
and you get the patent rights for the life of the patent, but you
have to negotiate a royalty. Also, UC was the easiest in the
Regional Oral History Office, The Bancroft Library, University of
California, Berkeley, 1998.
27
sense that the research agreement guidelines were set out. But
some of the individuals were complicated to deal with, between
the central licensing office in Berkeley and UCSF.
Hughes: But they did have a mechanism in place?
Swanson: There was a mechanism in place, but this was the first time
anything like this had come up. And then City of Hope has no
endowment. It started out as a Jewish center for tuberculosis at
Duarte in the Pasadena area. They now take care of patients and
do research, but with no endowment. Every single dollar has to
be raised every year, and they do an unbelievable job of raising
this money. Every chair in the cafeteria has someone s name on
it. It s such a difficult task, so there was a real need for
funding there. So about this agreement, everybody said, "Well,
this is money that I wouldn t have otherwise." [laughs]
It turned out we did the agreement with Caltech, but
eventually they didn t really make any of the inventions, so
there was no royalty stream to them.
Hughes : Was it easy to make an agreement with Caltech?
Swanson: Yes, Caltech was probably the easiest because they were used to
having research agreements with industry.
The Second Wave of Financing, February 1977
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
So that whole process took place primarily during the remainder
of 76 while the research plans were put together and Riggs and
Itakura convinced us to do somatostatin. Then, based on all the
agreements in place and the plan ready to go, I raised the next
round of money in February 1977, I guess, which was about
$850,000. Then the research on somatostatin began in about
February of 77.
Kleiner & Perkins funded the first phase,
this February step?
They put in another $100,000.
What motivated them?
Making more money.
Who was involved in
28
Hughes: [laughs] Yes, but why with you? It was an untried technology
and, from what you ve said, they must have had some doubts about
you.
Swanson: Well, see, everything I said I was going to do, I did.
Hughes: As simple as that.
Swanson: I had said I d set up the agreements; we d be all ready to do the
research. So all that had taken place exactly as planned.
Kleiner & Perkins put in just $100,000 of the $850,000 to get the
other venture capitalists to come in.
Hughes: Is that a usual ploy?
Swanson: It changed. But at that point in time, you d make an early
investment, and then you d make some others, but the goal was to
get other people to put more money in later on. And there were
some very good funds, the Mayfield Fund and others, that came in
at that time . And that was the money that was going to prove the
technology with somatostatin, which happened the following August
or September [1977]. It was seven months from February when we
started the work that culminated in the proof of the technology.
Research and Social Associations at UCSF
Hughes: You still hadn t hired anybody?
Swanson: The funding was for the [academic] research labs, so nobody had
to leave the university. Rather than coming from NIH, the funds
came from Genentech, and they were able to do the research they
wanted to do.
Hughes: Some funding was going to Herb Boyer s lab, to two of his
postdocs?
Swanson: Yes. The funding went to Heyneker and Paco Bolivar to do the
research and for the reagents and a part of Herb s time and
whatever UC s overhead was at the time, 39 or 40 percent or
something like that.
Hughes: Which caused trouble within the university, within the Department
of Biochemistry. 1
See the previously cited ROHO oral histories with Herbert Boyer and
William Rutter, and the oral history in process with Keith Yamamoto.
29
Swanson: I don t remember. I wouldn t be the best one to know.
I remember during the work on somatostatin, so it was during
77 or even before then, I would go over to UCSF. I think it was
usually Goodman s lab that would have what became the ho-ho s at
Genentech. They d have wine and cheese on Friday, and everyone
would get together and talk. It was a very congenial atmosphere.
I borrowed that idea not only from them but from Tandem, which
would have beer gatherings on Friday. It was a chance for people
at all levels of the company to get together and talk and share
ideas.
Hughes: You felt part of the UCSF group?
Swanson: I think they accepted me. I think Howard was a little, what s
this guy doing here? But they knew that Herb vouched for me.
Hughes: How did you dress to go over to the university?
Swanson: I usually had a suit on. [laughter]
Hughes: Right there, you stuck out like a sore thumb!
Swanson: Yes! But not all the time.
Hughes: Well, you could have felt quite socially isolated: it was a group
of scientists who knew each other before you appeared on the
scene, and their attitude could have been, here is this guy from
industry. Why is he here?
Swanson: I got along really well with all of them; it was very congenial.
I love talking science ; I was really interested in what they were
doing. For me, it was an exciting, stimulating thing. Where
does this thing go, and how fast is it progressing? So just to
listen to them was fun.
Controversy over Faculty- Industry Associations
Hughes: One question being asked at the time was, What right do
university scientists have to be making money from government-
funded basic research?
Swanson: I don t remember all the details, but for me it came down to, why
do we want the government to take part of our tax dollars that
you and I send in every year and fund basic research at the
university, especially in the biological sciences? We hope that
there are going to be some basic discoveries that come out of
30
there that eventually can be turned into products that can cure
Aunt Sally s cancer or Grandma s arthritis or whatever it is. We
love to have science progress but basically we want some tangible
results. And whose job is it to deliver that? It s industry s
job to deliver on new products.
One of the strengths of the United States, and it hadn t
been in the molecular biology field, has been the quick transfer
of technology from academe to industry. We do it better than
anywhere else in the world, and it s why we re so successful.
The discussion that I remember was, is this industry- funded
research appropriate for a university environment, or are you
just using the university to make products? Well, we weren t
doing that, so that wasn t it. The other one was, if you re
funding research in the lab of somebody who owns the company, are
some of the people in the lab getting the benefit? Well, that s
all right if it s all disclosed and everybody knows what the deal
is. And it was all disclosed. Everybody knew everything that
was going on, so that wasn t an issue.
One of the things that was important to me was that every
scientist working on this project was also a shareholder. So all
the early postdocs bought shares with their own money. Since
Herb and I put in $500 eachand we had no moneywe figured that
everybody would be able to put in $500 if they wanted. If they
bought more shares than that, we d lend them the money, but
everybody had to write a check for $500. If they bought $2,000
worth of stock, or $5,000, they d get a loan for the difference.
So they all had a chance to buy shares.
Hughes: And did they?
Swanson: They did. Because I believeand this has continued to today-
people doing the work should be owners of the business. Even if
you own only a small part, you think like an owner and you make
the best decisions because you spend the company s money like
you d spend your own. Also, if you build value in the company
that s beyond what you take home in a salary, which is what you
should be doing, then you get to participate in that income.
Swanson: It wasn t until we got Itakura doing it, and the lab set up at
City of Hope, that the synthetic DNA really started coming out.
Hughes: Dr. Boyer spoke to me about his painful memories of that period.
He felt attacked by some of his colleagues.
Swanson: Oh, I think he was viciously attacked.
31
Hughes: So you knew that was going on.
Swanson: I knew that people were unhappy. I think later it developed
more. I don t know exactly when the time period was, but there
was criticism of him--"selling out to industry" was the
terminology. You can imagine the pressure when Goodman and
Rutter signed consulting agreements and then felt so much
pressure that their academic colleagues would think so much less
of them that they couldn t go through with those agreements. So
Boyer was pretty unusual in the sense he said, "I think this is
the right thing to do, and I ll take the criticism of my peers
because I m going to do it." On the other hand, he was committed
to Genentech at that point .
As someone has said, they had people on the inside of the
Nobel committee when they made a decision, and the fact that Herb
had commercial ties was one of the reasons he didn t make the
last cut. And I believe that s true. I think he and Cohen did
the breakthrough experiments.
Dan Adams and International Nickel
Swanson: Let me add just one comment: one of the second-round investors
was a company called International Nickel. A fellow named Dan
Adams there had been excited about this technology, and he was in
charge of getting them into new areas of science.
Hughes: Had he heard of recombinant DNA from you?
Swanson: I don t remember. One of the reasons we wanted him as an
investor is, he had talked to a bunch of scientists in Europe and
elsewhere, including Charles Weissmann and Walter Gilbert and
Phil Sharp at MIT, and a number of others in Europe. Dan said,
"Well, if I invest in you, I will bring these people along and
they can be advisors." What actually turned out is that he made
the investment. And then he set up Biogen, took our business
plan, and funded these scientists in starting Biogen who were
supposed to be advisors to us.
Genentech actually wound up getting some shares, because I
was angry and went over to a Biogen meeting in Slough, right near
Heathrow Airport. Finally they said, "Oh, yes, Genentech should
32
get a few shares for this," and then we immediately sold them
back to them. It was very little money. 1
Presentation to Crocker Capital, March 12, 1976
[Interview 2: November 20, 1996] ##
Hughes: Since we talked last time, I found some more early Genentech
documents, and so I d like to go over the beginnings of the
company in a bit more detail. Please tell me about the
presentation that you made to Charles Crocker. 2
Swanson: Before the original investment was made by Kleiner and Perkins,
they said, "You have to show us that you re willing to do this on
your own." So I went out to try and raise money from individuals
and other institutions, and one of those early presentations was
to Charlie Crocker, a longstanding venture capitalist on the West
Coast. And there were a number of others, too.
As it turned out, a good part of the money was raised prior
to Kleiner and Perkins committing the first $100,000 to the
venture, and they committed it based on their being the only
investor. So some of the people I talked to early,
unfortunately, didn t get a chance to participate. Charlie
Crocker did decide to pass, so he wasn t one that had decided to
participate. And remember, it was just me and an idea at that
point, so it would be very unusual if somebody got very excited
about it.
Arguing for an Exclusive License for Recombinant DNA
Technology
Hughes: In April 1976, you made an appearance at the Stanford Technology
Licensing Office. 3 At that point they were trying to get a
patent on the Cohen-Boyer work that had happened in 1973-1974,
which was the basis for what you were doing.
$300,000, as reported in the Offering Prospectus for Genentech s
initial public offering. (Notation by Thomas D. Kiley, hereafter cited as
TDK.)
2 [Robert Swanson], "Outline for Discussion, Crocker Capital, March
12, 1976." (Chief Financial Officer files, Genentech.)
3 [Robert Swanson], "Genentech, Meeting, Stanford Office of Technology
Licensing, April 19, 1976." (Chief Financial Officer files, Genentech.)
33
Swans on: Right.
Hughes: Could you tell me about that meeting?
Swanson: Yes. We had a number of meetings over that period of time, and
Niels Reimers was there. 1 I tried to convince him that he should
give Genentech an exclusive license to the Cohen-Boyer work for
making pharmaceutical products. I felt that was the best way to
ensure that the universities maximize their return because it
would give somebody an enormous incentive to really develop the
technology. They opted instead to offer a very broad,
inexpensive, nonexclusive license, and they ve done very well
with that. The experiment was never done whether they would have
made more if it had been exclusive, but it was probably not
politically possible.
That presentation was to try to get an exclusive license
because I saw those early Boyer-Cohen patents as important and
precursors to the ones that we achieved by being the first to
actually produce a human hormone [somatostatin] in a
microorganism. So the combination of those two inventions would
have been very strong patent protection for the company.
Hughes: Who was responsible for the decision not to give Genentech an
exclusive license?
Swanson: It was Niels. He was in charge of the Cohen-Boyer patent
application. We later licensed the technology nonexclusively ,
and he thought that approach was the best way to maximize the
return for the university.
Hughes: Were universities in the habit of granting exclusive licenses?
Swanson: Oh, sure.
Hughes: So you weren t asking anything untoward?
Swanson: No. And in fact, if a company funds research at UC and it covers
all the costs including the overhead, the university will give
you an exclusive license for the life of the patents or any
patents that come out of that work. Of course, you pay UC a
royalty, and that s to be negotiated. I think there s a strong
history of that happening. The University of Florida had
Gatorade, I guess was the invention, and they licensed that
See: Niels Reimers, "Stanford s Office of Technology Licensing and
the Cohen-Boyer Cloning Patent," an oral history conducted in 1997 by Sally
Smith Hughes, Ph.D., Regional Oral History Office, The Bancroft Library,
University of California, Berkeley, 1998.
exclusively to one company and reaped good returns,
basically an economic decision.
So it s
An exclusive license provides a real incentive for the
person that has it to get out and make that technology as
available as he can. Because you know yourself, if you had a
choice to invest in two companies, and one had a nonexclusive
license to a wonderful invention and one had exclusivity, you d
rather invest in the latter because the chances of success would
be greater.
Hughes: Yes, but couldn t one also argue that with a technology that had
as many potential applications as recombinant DNA, the more
companies having a license the better? There was no way that
Genentech could explore all the avenues available. So in terms
of getting the technology dispersed, didn t it make sense for
Stanford to have a nonexclusive license?
Swanson: Well, sure. At one point they were exploring having some semi-
exclusive licenses.
Hughes: How would they work?
Swanson: You can talk to Niels about it, but I think it was limiting the
license to five companies or something, so there would be
competition. We discussed a whole range of options. At the time
and still today, everybody s looking at industrial applications,
agricultural applications, and I was just interested in making
pharmaceutical products. So I said, "Okay," and we discussed,
well, if an exclusive license is not possible, how about an
exclusive on a couple of polypeptides. So I think you could have
divided it lots of different ways. One could say that it would
have taken a lot more work and maybe would not have been
practical, but if you did exclusive licenses product by product
for a higher royalty, Stanford and UC probably would have done
better.
Hughes: Yes.
Swanson: At some point, we licensed companies in Europe. We finally said,
"We can t do a license in every country; it just takes too much
time . " So we then looked for a partner that could take care of
all of Europe. So there are real constraints on what can be
done.
Hughes : Did it worry you when you walked away from that meeting at
Stanford that you did not have an exclusive license?
Swanson: No, because it was pretty clear that someone else wasn t going to
get it if we weren t, and that Niels would make a decision to
35
make it broadly available. Remember, at that time nobody else
believed [recombinant DNA] could work. We hadn t even proven
that you could make a useful product out of it. So he saw the
potential and I saw the potential, but there weren t a bunch of
other companies clamoring to invest money in this field,
[laughter]
Hughes: That s what companies coming into the field after Genentech had
to face. Genentech was up and running, and these patents weren t
exclusive: do we have a prayer of a chance of competing? You had
a clear field that after you no other company had.
Swanson: Right. Well, luckily, there s so much to do that even in the
broad pharmaceutical industry, which was our field- -and this may
have changed recentlyno one owns more than 5 percent market
share, except possibly Merck. So you compete along very specific
lines. If you have an insulin product, you might have one
competitor in that business. Or if you re making a beta blocker,
then you may have three or four competitors. So really there s
lots of opportunity for competition in the industry. And
obviously we couldn t do everything.
Focus on Making a Few Products
Swanson: In fact, we purposely focused on doing only a few things well.
When we strayed from that, Dave Packard would remind us at the
board meetings, "Boys, I haven t seen too many companies die of
starvation, but quite a few get indigestion." And he would put
us back on track. It was very, very nice to have a mentor like
Dave to help guide us because here was somebody that had done it
before, had built a multi-billion-dollar company [Hewlett-
Packard] , and done it in a way where people were still excited to
go to work there. There was a good, strong culture and taking -
care-of-people philosophy in the company even years and years
later. We modeled our corporate philosophy--it s different, but
the basics of my development of the corporate philosophy really
came out of HP s statement of objectives, I think they called it,
that I saw and I liked very much. So Dave was a great help all
along the way.
Hughes: Is Packard s advice reflected in this second business plan? 1
Because I notice there is some language about concentrating on
"Genentech, Inc., A Developmental Stage Company, Financial
Statements, Period from Inception A/7/76 to 12/31/76, Report of Certified
Public Accountants." (Chief Financial Officer files, Genentech.)
36
specific products, in other words, not spreading your energy too
broadly. Would Packard have been on the board by 1976?
Swanson: No, it wouldn t have been that early. It would have been in the
late seventies, early eighties. 1 [tape interruption]
Hughes: We ve been looking through the documents, trying to find a
statement indicating that Genentech- -before Mr. Packard was on
the board, which was some time after 1980- -was already very
focused. You might want to comment on why you saw focus as
important for the company.
Swanson: I think one of the things that I did the best in those days was
to keep us very focused on making a product.
Somatostatin
Swanson: We re looking at the business plan of December 76. At this
point, the arrangements had been made for doing the research with
UC and City of Hope and Caltech. We were ready to begin the
process of seeing whether we could get E. coli to make a human
hormone. So this was the money that was raised here, which
actually closed in February [1976] --some $850,000 that we then
invested at those different universities to see if we could clone
and express the somatostatin gene in E. coli, which we succeeded
in doing at the end of the summer of 1977, about six months after
we had officially started Genentech and way ahead of anybody s
expectations that it could be done.
One of the scariest parts for me was when we had succeeded
in synthesizing different segments of the gene, hooking it up to
the promoter sequence, and putting it into E. coli. We were down
in Art Riggs s lab at City of Hope looking for somatostatin
[whispering dramatically] and nothing came out. So this was
chewing on my heart, and I think I actually got physically ill
that day, because I thought, Oh, God, everything that everybody
thought might or should happen didn t happen.
It turned out after a month or so of working on this problem
that the somatostatin was being made by E. coll, but it was being
chopped up as quickly as it was being made, so it wasn t easily
detectable. We had to come up with a trick of making the
On October 21, 1981, Genentech issued a press statement announcing
Packard s election to its board of directors. (Corporate Communications
files, Genentech.)
37
somatostatin attached to a longer protein, and then chopping it
off, and then we succeeded. But it was a very scary time, when
you saw money and your career and reputation going down the
tubes .
Hughes: There was some concern in scientific circles that when you
spliced a foreign gene into a bacterium that it might take on the
genetic material but it might not express it. You never had
doubts about that; Herb never had doubts about that?
Swanson: Well, before we started, they had chemically synthesized the gene
for the lac operon, and that seemed to work just like a natural
lac operon. So we believed that if you synthesized the gene for
a human hormone and you hooked it up to the right control
signals, you could get it. But no one had done it before so no
one knew for sure. If you didn t believe that, you wouldn t have
started the experiment. [laughs] But it was lucky that it
worked as quickly as it did.
Hughes: In the presentation to Stanford, you talk about devoting
Genentech s resources to one product area at a time, and that s
what struck me about the focus of the company. Another way would
have been to hedge your bets and try several things at once. But
you didn t see it that way?
Swanson: Well, we were a very tiny company. It was basically Herb and I,
and Herb had his duties as a professor at UC, so there was one
full-time employee. According to these agreements with the UC
Board of Regents and Caltech and City of Hope, we were funding
the research, which was research to establish, could we make a
human hormone? We started out with the goal of doing insulin,
and then based on the scientific input that this might be just a
bit too far technically for the first step, we switched over to
somatostatin, and that was what was done in 77.
Somatostatin was fourteen amino acids; insulin had fifty-two
or fifty- four. So it was the next step up in something to
tackle. We thought that if we succeeded with insulin, there
would be a significant commercial market opportunity because of
people having to take pig and cow insulin extracted from pancreas
glands. And since we had to be focused, we concentrated on
insulin.
Hughes: Yes, for several reasons, as you re saying. One, manpower; there
wasn t much. Then limited finances, and also because of the
science itself. I know you had to be convinced, as you said last
time, to take on somatostatin first, but scientifically, it made
sense to progress from somatostatin to insulin.
Swanson: Right.
38
Limiting Risk
Hughes: Another thing you said in the presentation to Stanford was that
you would not be engaging in what you call "missionary marketing
efforts." You might want to talk about that, and also your
longer-term vision of what you wanted this company to become.
Swanson: If you re really going for it on the science, then you want to
limit risks in the other areas. So in the financing area, you
don t want to run the chance of running out of money. And you
don t want to be taking risks on--if you succeed in getting the
product, will anybody want it? And so the missionary marketing
statement was really designed to say, "Okay, here s a product
that people need today. Hopefully, the human version of insulin
will be a better version than the pork." We didn t know that,
but it would seem to make sense that the version in the human
body would be better accepted and people would want it. And so
as a first product, you weren t going after a totally new product
that nobody had used before. It was a way of limiting the risks.
Corporate Goals
Swanson: As I look here at the corporate goals in these presentations, it
was always the goal from the beginning to build a major,
profitable company. That s number two in this list of goals.
The first is, "To engage in the development of unique
microorganisms capable of producing products that will
significantly better mankind." 1 So we had to be able to show we
could make microorganisms capable of producing products that will
significantly better mankind. And we were going to be a company
to make and sell these products ourselves.
So those were very clear statements from the very beginning.
We didn t want to be just a research operation; we had to be able
eventually --we couldn t do it at the beginningto make and sell
the products , and we were going to try and build a big company to
do this. We were going to advance the state of science, which
was important. And then we were going to have the very best
people. We were going to have them come, and we were going to
try and be a place where the best people would want to work, and
they would want to stay. Actually, I m pretty proud of that,
when I look at this business plan. It was very clear right at
1 [Robert Swanson], "Genentech, meeting at Stanford Office of
Technology Licensing, April 19, 1976." (Chief Financial Officer files,
Genentech. )
39
the beginning, and I think they were, although ambitious, the
goals and objectives we needed to achieve.
Hughes: You wanted a fully integrated company that would develop, market,
and perform all the activities of a pharmaceutical house?
Swanson: I think in the long run, you needed to do that in order to
control your destiny.
One of the most successful pharmaceutical companies, a
company in Europe called Janssen, had been run for many years,
doing outstanding science and licensing the products out.
Eventually there was not enough money in the licensing to fund
the next round of research, and so they finally became part of
Johnson & Johnson. So that example, and I don t know when I
focused on that, is something I think about now as being key.
The economics are pretty significant. Obviously, if you
sell something in the pharmaceutical business, you have costs of
marketing and other things, but typically, your margins are in
the 85 or 90 percent range. At that time, pushing 8 or 10
percent was thought to be an outrageous royalty rate. One way or
the other, you ve got enormous research risk. So you start
looking at what you re able to achieve in terms of the return on
your research investment, and it s a better return if you re able
to make it and sell it yourself. If we make a better return, we
can plow more into research. So that was part of the thinking as
well.
The High Cost of R&D
Hughes: All along, you were driven by the high costs of R&D, which take
up more of the budget than in other sorts of business, right?
Swanson: Yes, and we have always been at the upper end. I don t know
where the industry average today is , maybe in the high teens or
low twenties in terms of research and development as a percentage
of revenues. I think around 50 percent of all our revenues get
plowed back into R&D, so it s very much higher than the industry
average, and it always has been.
Hughes: You mean the biotech industry?
Swanson: No, the pharmaceutical industry.
Hughes: So what would a Merck be putting into R&D?
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
40
I think maybe 18 percent or something like that. And a food
company might be at 0.5 percent. So the pharmaceutical industry
itself is at the very high end of the range. But at the
beginning, to be fair, it was all R&D [at Genentech] . It was 100
percent, because there were no product sales. [laughter] But it
was always the thought that we d plow back a much greater
percentage into R&D.
Another thing you said in the presentation to Stanford was that
you were going to identify an initial market for a protein
product with known chemical structure. Were you thinking of
insulin or somatostatin?
I don t know whether we had decided. The goal was always from
the beginning human insulin. The somatostatin was a step towards
that goal. I think I saw human insulin mentioned in the outline
for the presentation. [scans documents] Somatostatin is part of
the plan that was attached here.
You re looking at the documents for the Stanford presentation?
I m looking at the Stanford presentation. 1 So the plan was to
build the microorganisms to produce somatostatin first and then
insulin.
Well, that indicates that you d already been talking with Riggs
and Itakura.
Right .
And that was April 1976.
April 19. So it was shortly after we were incorporated,
think we probably met them some time in February, March.
Yes, I
Hughes: Yes, before you were incorporated.
FDA Approval
Hughes: Then there is a list of criteria [reading] "to identify an
initial market target. 2. A product which is available today
only in limited quantities compared with demand, where our
production techniques are substantially less costly than those of
the current suppliers... 3. A product whose market potential is
Ibid.
41
greater than $20 million... 4. A product whose market volume is
high compared to the capital equipment necessary to produce it.
5. A product with a well defined limited customer base to
minimize marketing expenses... A product that minimizes the
effects of government regulation." Regarding the last, you were
thinking of more than the NIH guidelines?
Swanson: Clearly, from the beginning the goal was to try and find a
product that could be reviewed and approved easily by the FDA.
At that time, insulin was actually regulated under a different
set of rules than new chemical entities, and so I thought that
might be helpful. We didn t have a lot of experience, obviously,
but we did a little homework to try and figure out what would be
the end point for approval.
II
Swanson: In the insulin case, it was easy to say, Okay, is it safe? Is it
reducing the level of glucose in the blood? As opposed to some
of the other FDA criteria which were more difficult to satisfy at
the time. At the time, they were requiring survival to prove a
new cancer drug, so you had to do long studies and show
survivals. Even arthritis: is your hand feeling a little bit
better? It s not as easy to measure, and probably would be
longer and more difficult for approval. So thinking about how
quickly something could go through the regulatory process was a
key part of the product selection.
NIH Guidelines for Recombinant DNA Research
Hughes: Industry was not regulated by the NIH guidelines, although I
think Genentech voluntarily abided by them.
Swanson: Yes, we did.
Hughes: Why?
Swanson: Well, we thought we were lucky that there were guidelines in the
United States, unlike Japan and Holland and a few other countries
which prohibited the research. Herb and I had actually worked
quite diligently, going back to Washington to suggest that the
guidelines be [only] guidelines and then put in place with the
flexibility of reducing them or changing them. We were sure they
would be reduced, because in our minds there wasn t a concern
about safety. It was important if you have that structure [the
NIH guidelines] that everybody follow them. We wouldn t have
42
gotten our first scientist [Herb Heyneker] if Holland hadn t
prohibited his doing his work.
Hughes: I didn t realize there was total prohibition, because there were
American research teams that went abroad to escape the
guidelines, as you probably remember.
Swans on : Right .
Hughes: Isn t that one of the reasons that Biogen--
Swanson: --went over to Strasbourg? Yes.
Hughes: And members of the UCSF Rutter-Goodman team went to France.
When you began to work on insulin, did you have to have P3
[physical containment 3] facilities?
Swanson: No, we were synthesizing the DNA, which is the other advantage of
that approach. We knew what we were putting in. In addition,
you have to remember that cDNA technology at that point was
hardly developed. It was a dream in Axel Ullrich s mind, and it
was moving very quickly, but it couldn t be relied on to do what
you wanted it to do. So again, you knew you could synthesize
these genes. It was complicated and expensive and long, but you
knew pretty well that you could put them together like that.
Somatostatin as a Potential Product
Hughes :
Swanson:
Hughes :
Swanson:
Did you seriously consider marketing somatostatin?
always just a step to insulin?
Or was it
I think that we thought that it might have some potential. We
weren t sure. It was a signal that turned things off, and we
said, "Well, maybe this could be a useful product." But the goal
was always insulin. Once we had somatostatin available, other
people did more in looking at it. I know Merck made a whole
bunch of analogues with unnatural amino acids and other things to
see if there could be a product there. But we couldn t afford to
do that; we had to have something where we knew there was a
market .
Yes, and somatostatin was questionable, was it not?
Yes, you didn t know. Maybe it could have been wonderful.
People are still looking at it today. I saw somebody the other
day doing research on it.
applications .
So there are some other potential
Hughes :
Leaking the Somatostatin Success Story in the U.S. Senate
On November 2, 1977, when Science received the paper on
somatostatin, the head of the National Academy of Sciences,
Philip Handler, reported to a Senate committee that somatostatin
had been produced. 1 The announcement was meant to indicate yes,
recombinant DNA was promising technology, it was doable, and it
also had commercial possibilities. Do you remember that?
I don t remember. I remember Herb and me making a number of
trips back to Washington and sitting in Senator [Edward]
Kennedy s office and explaining the technology, and our reason
why the guidelines shouldn t be made law but left as guidelines.
Hughes: You were not called to testify to Congress?
Swanson: I don t think so. Boyer might have.
Hughes: Yes, Boyer definitely did, and Rutter did as well. 2
Swanson:
Sponsored Research Agreement with the University of
California
Hughes: Let s turn to the contract with UC.
Swanson: Oh, the sponsored research agreement, yes.
Hughes: [tape interruption] We re looking at the contract with the
University of California, the first of August, 1976.
Swanson: Effective then. I think it was signed a little after that. What
it did was describe the research that was going to be conducted
in Dr. Boyer s lab and what the results might be, and grant us
rights under any patents that would come out of that. In that
sense, it followed almost directly from the guidelines that the
Stephen S. Hall, Invisible Frontiers: The Race to Synthesize a Human
Gene, (Redmond, WA: Tempus Books, 1987), pp. 174-175.
2 For Beyer s and Rutter s views on their congressional appearance,
see their previously cited ROHO oral histories.
44
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Board of Regents had at the time--I think still do, but I m not
certain of thatthat were set up to encourage industry to fund
research. They said, if you fund all the costs of research plus
overhead, you can get rights to the patents for the length of the
patent life, for a royalty or some other kind of agreement.
It was an exclusive license in this case?
Yes. We were funding research. We were very careful to make
sure we used no government money, so we had all the direct and
indirect costs of the research covered. UC got their overhead
rate for funding, and we d get exclusive licenses on any
patentable work that was done in the context of the research.
There s a budget approved--
An exclusive license was pro forma?
Yes
, that was part of the regents patent policy.
With the Stanford Technology Licensing Office, apparently a
discussion point had been what kind of compensation the
university was going to receive, whether it be royalties, or was
there indeed talk about stock options?
I don t remember. And the contract with UC here talks about
royalties not to exceed a certain percent of selling price. I
know for sure that there were discussions with Niels Reimers
about an equity position there at Stanford. I don t know whether
it was ever brought up at UC or not. I m projecting, but I
imagine that we might have talked about that.
As a member -of the board of trustees at MIT later on, I ve
always encouraged the university to take equity. I think the
universities would be far better off if they did take equity
positions in addition to some royalty. Oftentimes, it s a way of
diversifying their risk, because maybe there are no patents on
the topic that s funded there, but if the company does well for
other reasons, they participate in that. And oftentimes, a
company gets valued in anticipation of product sales so that
their return can come sooner than a royalty stream. If I was
advising a university at that time or today I would encourage
them strongly for their own benefit to take some equity.
But for whatever reason, Stanford and UC chose not to take equity
positions .
Well, I think it was the guidelines. The agreement focused on a
royalty rate to be negotiated with the regents. So I don t know;
I can t guess at what they were thinking.
45
Hughes: Was the patent office at UC up to speed?
Swanson: Yes, they were going. There was a liaison person at UCSF, and
the [UC systerawide] licensing office was right off University
Avenue in Berkeley.
Hughes: On Oxford Street?
Swanson: Yes, where university dead-ends at the campus. There was a very
sharp woman that I negotiated with. I don t remember her name. 1
Building the Business
Patenting Issues
Hughes: I wonder how accustomed UC was to patenting. From what you re saying,
they were pretty used to doing it. But biotechnology was new to them.
Swanson: It was a whole new field. There were lots of chemists interacting with
industry, but there were hardly any biologists. So that was totally
new, and even thinking about trying to bring a postdoc on board in
industry, nobody wanted it. "Industry? I don t want to be associated
with that."
Hughes: What about negotiating royalties? Was there a standard percentage at UC?
Swanson: I think it was pretty much open-ended. I don t know what their thinking
was, but there is some reasonable value for what is contributed, and it s
a matter of negotiation.
Hughes: Do you remember how it ended up?
Swanson: I don t. 2
Hughes: It was not until 1980 that the Supreme Court decided in Diamond v.
Chakrabarty that one can patent a living organism. And that was one
of the things that was holding up the Cohen-Boyer patent. 3 Was any
of this worrying you?
Josephine Opalka was the UC patent administrator in these years.
2 0riginally, the agreement provided for a negotiated patent royalty
rate not to exceed 2 percent and 1 percent for know-how, absent patents.
(TDK)
3 For the history of the Cohen-Boyer patent and its impact on
commercial biotechnology, see: Sally Smith Hughes, "Making Dollars Out of
DNA: The First Major Patent in Biotechnology and the Commercialization of
Biology, 1974-1980," Isis, in press, fall 2001.
46
Swanson: Yes, well, everything. [laughter] I was worried about a lot of
things. I was worried most of the time. But you sort of put a
brave face on it and say, Well, maybe if the organism itself
isn t patentable, maybe the genes that you ve made are
patentable. Obviously, the more you can wrap patents around what
you re doing, the better off you are.
They had this national depository [the American Type Culture
Collection] where you could put microorganisms that you d
created, because at that time, see, you couldn t adequately
describe microorganisms. Here we were able to describe the
genes, and you put this gene in, you put this control mechanism
in, so it was much more amenable to description. I remember one
of the issues was, do we have to deposit [our microorganism] as a
reference in this U.S. depository as part of the patent filings?
Hughes: And did you?
Swanson: I don t remember. I don t think we did. 1
Thomas Kiley, Patent Lawyer
Hughes: Do you remember getting a patent lawyer on board pretty quickly?
Swanson: Yes. As a matter of fact, if you look at that 1980 booklet, 2 our
then general counsel, Tom Kiley, was a patent lawyer, and he s
the one that I also recommended you talk to. 3 He was a partner
at Lyon & Lyon, and he used to come up from Los Angeles where
they were located. He gave me a special rate and slept on my
couch to save me money if I bought him a decent dinner!
Hughes: So he must have been on board earlier than 1980, right?
Initially, Genentech did not deposit the somatostatin organism. A
subsequent court decision permitted deposit prior to patent grant with
relation back to the filing date of the patent application. Genentech
deposited prior to patent grant. (TDK)
2 "Genentech, Inc., Amendment no. 2 to Form S-l, Registration
Statement under the Securities Act of 1933, filed with Securities and
Exchange Commission, October 14, 1980." This is Genentech s application to
the SEC to obtain status as a publicly held company.
3 See oral history of Thomas Kiley, interviews conducted in 2000 by
Sally Smith Hughes, Regional Oral History Office, The Bancroft Library,
University of California, Berkeley, in process.
47
Swanson: He says his only regret is that he didn t leave Lyon & Lyon early
enough because he would have liked to get more stock. 1
[laughter] From the very beginning of 76 he worked for us as an
attorney so I had to pay Lyon & Lyon the fees. At some point
between 76 and 1980, he joined the company, which was great. 2
He and I negotiated the early deals with Lilly and Kabi, and so
it was very much of a partnership in terms of going out and doing
all this.
1 remember the first time I was interviewing him--I went
down there [to Los Angeles]--! had Riggs along for the interview
with Kiley to see whether we were going to hire him at the time
he was at Lyon & Lyon. I brought Riggs because he was clearly a
scientist s scientist. I said, Okay, we want an attorney who can
interact well with the scientists and whom they ll feel
comfortable talking to, and so that was a test. Riggs came away
loving him, so I thought, Okay, this is good. Tom had come well
recommended as a patent attorney, but if you don t get the
information transferred from the scientists, you can t write good
patents. Tom did all the early legal work as well as the patent
work for us, and then eventually joined as the general counsel.
Funding Strategy
Hughes: I know of two funding waves. Isn t there a third one that comes
at this early stage?
Swanson: Oh, lots of them. [laughter]
Hughes: Were those sufficient, or were there other funding mechanisms
that you had up your sleeve for getting through a considerable
period of time before you actually had a marketable product?
Swanson: There were two things that are probably worth mentioning. It
still amazes me how few of the entrepreneurs who come in and talk
to me today think about it this way, and when they leave, they
think it s a revelation. It is that you have to create value.
So each time you raise money, you use that money to create
additional value in the company itself. Then once that
additional value is created, the company is worth more, and then
you raise the next piece of money to create the additional value,
and so on and so on. So the trick is to raise enough money and
Text from interview 5 was added here.
2 Mr. Kiley served as outside counsel to Genentech from 1976 and
joined the company as vice president and general counsel in early 1980.
48
deliver on what you say you re going to do before you run out.
Because if you run out, then the venture capitalists may give you
more money, but it will be very expensive. That s how we thought
about it from the beginning.
The first round we got $100,000 for Boyer and me, and we put
together the agreements with the universities and brought on
Caltech, City of Hope, UC, got Riggs and Itakura and the team
ready to go. That was more valuable than just the two of us with
an idea. We raised the next round with the business plan you
have here, December 76. I think $850,000 was raised and that
closed in February. Then that round was used to fund the
research at City of Hope and UC that produced somatostatin. So
then we proved that the technology actually could produce a human
hormone.
Then I raised the next round in February the following year,
1977, and that was designed to make human insulin. So each time,
it was done at a greater value of the total company. The value
of the company went from $400,000 to maybe $3.3 million to $11
million, and on up. And of course, if you have a company worth
$10 million and you sell $1 million worth of stock, they get 10
percenta little less, actually, when it s all calculated out.
So that s the way I worked.
The other point that was important was that we consciously
set out to try and break even on a cash-flow basis. So we tried
to get partnerships or funding from companies to cover our
operating expenses. That basically started about the time we
succeeded with insulin; maybe a little earlier. The idea was, if
you could have contracts to fund your costs of everyday research,
then you could raise money with moire flexibility from a timing
standpoint, as opposed to being at the mercy of the investors.
So that was a very important strategy, and basically from
1978 on, we were profitable. We weren t selling anything, and
there was not very much profit, or it might have been a penny
plus or penny lost, but it was basically break even. Now, we
used more cash to build laboratories and equipment, but the basic
funding of the scientific work as salaries and reagents and
everything was funded from these outside contracts and
agreements, so it reduced the risk of running out of money at an
inopportune time. And that s how we expected to last long enough
for the products to get to the market.
49
Deciding against Diagnostic Products
Hughes: One of the ways that I suppose you could have gone was towards
diagnostics, and yet you were focused on what you were calling
"ethical drugs." (I think that is an interesting term.) One of
the reasons that startups might go into diagnostics is that the
FDA approval process is simpler for diagnostics than for
therapeutics, and hence it s a quicker time to market.
Swanson: There are a number of reasons why Genentech didn t go into
diagnostics. One is, what gets me really excited is curing
diseases. That s what I wanted to do, why I started the company.
The other, more pragmatic reason is that a lot of companies had
the strategy of, Okay, I ll do diagnostics first and use the
sales of the diagnostics products to fund research and
development of drugs. There may be more now, but only one
company I know of succeeded in doing that--Genzyme. It s a
really hard problem, because there s a bunch of well-entrenched
diagnostics people out there, too. And so just making and
selling diagnostics, maybe the approval is quicker, but then you
have competitors. And managing that can so distract you that
sometimes you don t get around to producing drugs or you don t do
it as well. So I think it s a very hard thing for a company to
have two foci like that. Obviously, some companies have done it,
but it s not easy as it might appear.
More on Focus
Swanson: I remember in those days that Cetus spent a lot of energy looking
for the perfect cloning vector. They were working with bacilli
and yeast and other things to find the best way of producing all
these recombinant proteins that were going to come along. We had
a very simple focus: we wanted to make human insulin and figure
out how to make as much of it as possible. The difference, I
think, was dramatic. We actually learned more about how
organisms made things by focusing on one thing and how to scale
it up, rather than on--
II
Swanson: --a system that could make any number of proteins. And as it
turned out, the universal system approach was harder to do, and
so our focus on how do we make this one protein was really a very
important difference and gave us a real advantage in the early
days .
50
The difference between the production of human growth
hormone and bovine growth hormone was at least an order of
magnitude. There was 80 percent homology. For some reason,
human growth hormone was made in large quantities when the DNA
was hooked up for direct expression. It was much easier to deal
with, but we just knocked our heads against the wall in trying to
make something as close to human as bovine. And one of the
reasons --not the only reason- -we let Monsanto take that was, hey,
we couldn t do everything, and that was probably a point where
Packard came in and had some say.
We got out of the animal health business because you had to
focus even more on that , even though bovine would be a natural
extension of our work on human growth hormone. They had done
studies that you d get 20 to 40 percent more milk with about the
same feed, so it would be a very economic benefit for the
farmers. There were a number of other reasons we didn t go down
that track, but making it wasn t easy either. [tape
interruption]
Acquiring Diverse Expertise
Hughes: In the speech that you made in 1983 to accept an award from
Stanford Business School, you said, "In private equity
placements, we have actively sought corporate shareholders who
could contribute more than money to our company." 1
Swanson: What we tried to do is think about not only corporate
shareholders but also other investors. In s ome respects, the
money is the easiest part to get. What you want is help in
building the business. So you d like a venture capitalist to be
involved in the sense that they know the problems and issues that
small companies face as they grow and maybe help you avoid some
of the mistakes.
In terms of corporate shareholders, one of the early ones
was Lubrizol. They competed in the motor oil additive business
against big oil companies and did very well, had about a 40
percent market share. And so the aim was to understand a little
bit about how to do that. We got Alpha-Laval. They made a lot
of the equipment involved in production, the centrifuges and
other heavy equipment for separating out the fermentation batch
and making the final product.
[Robert Swanson], "Stanford Speech," Stanford Business School, 1983.
51
One of our strategies for breaking even was to try and
license products we were developing to Japan and Europe and try
to keep the U.S. for ourselves. We could use the licensing
revenues from Japan and Europe to fund the research. One of the
early investors was Nippon Life Insurance, and we were the first
company outside the New York Stock Exchange they had ever owned.
And yet they owned on average between 7 and 8 percent of every
Japanese pharmaceutical company, so in one sense, the fact that
they were an investor helped us to do business with the Japanese
pharmaceutical companies. They said, "Oh, okay, Nippon Life is
an investor." It gave us a little credibility.
We thought we might have to do a lot of joint ventures
because we weren t going to develop the diagnostics area; we
weren t going to make instrumentation. Corning Glass is one of
the few companies around that had made joint ventures work very
well. So we had a joint venture with Corning Glass in industrial
enzymes for industrial applications. We had a joint venture with
Hewlett-Packard for instrumentation. We had a joint venture with
Baxter Travenol for diagnostics. The only one that really worked
was the Corning Glass one. 1
Hughes: Why didn t the others?
Swanson: I think it s one of these things of focus, that a joint venture
was done because there were two companies with complementary
expertise that if combined could take advantage of a market
opportunity. But it wasn t the primary focus for either, and
since there wasn t somebody really driving it to make it happen,
though it was very friendly, it just didn t work as well as we
had hoped. We decided to do something else. Fluor were
engineer-constructors of big plants, and we- were going to have to
build a lot of plants. 2 In fact, Fluor wound up building quite a
few plants for Genentech.
I did the same thing with other directors that I d brought
on board and tried to get people with expertise. With Dick
Monroe, who was CEO of Time-Life, I thought, Okay, here is
somebody who s doing consumer marketing and who might help
because doctors are consumers; they re just a limited group of
them. And here, I have to admit, Dave Packard had one of his
typically wise comments. He said, "Bob, it s nice to get help on
L The joint ventures referred to were, respectively, Genencor, Inc.,
HP Genenchem, Inc., and Travenol-Genentech Diagnostics, Inc. There was
also a joint venture with Prutech, Ltd. called Abaco, Ltd., aimed at making
recombinant rubber. (TDK)
2 Swanson invited Fluor Corporation to invest in Genentech and its
CEO, David Tappan, onto Genentech 1 s board of directors. (TDK)
52
the board in terms of expertise, but by far the most important
thing is good judgment. Go find people with good judgment and it
doesn t matter as much what their expertise is." I think he was
clearly right in that area. If you can get good judgment plus
some relevant expertise overlapping, it s better, but good
judgment is the most important.
Hughes: Did you have any problem convincing people in those early days to
be on the board of directors?
Swanson: It didn t seem to be too much of a problem. There was
serendipity in this as well. I don t want to make it sound as if
this was all carefully thought out. The concept was thought out,
but how it all happened was pretty fortuitous. The chairman of
Lubrizol had a Ph.D. in chemistry and was reading about the
technology and called me up and wanted to see me .
Hughes: Really? It went that way around.
Swanson: So that was pretty lucky. When we were on our road show for our
public offering, Fluor decided this technology was an interesting
one for them because they wanted to build plants, and if this was
going to be a new technology that required a lot of plants, they
wanted to be involved. So it all fit into my plan, but it was
also lucky as well.
We were introduced to Corning Glass because they were an
investor in the Mayfield Fund, a venture capital fund, which was
an early investor in us. Tommy Davis was one of my mentors and
the senior partner of the fund. He brought Ned [Edmund M. ]
Olivier, Coming s head of corporate development, to show him the
company and to see whether they d be interested in investing and
a collaboration. So one thing led many times to another, and
luck and serendipity were part of it. But all within the context
of saying, "I want the best help I can find to help me build this
company, make it successful. I m going to need money, but when I
get money, I want to get expertise." So I was open to all the
things that happened.
The Early Board of Directors
Hughes: Was Harry Faulkner an early board member?
Swanson: Yes. He was president of Alpha-Laval, the Swedish company. I
thought it would be nice to have a European viewpoint. Sweden is
the country of my ancestors, so it was a nice combination of all
those things.
53
Hughes: Faulkner doesn t sound like a Swedish name.
Swanson: You should hear him say it. [laughter] It sounds Swedish when
he says it. He may have some English in there. One of the
nicest things that happened in those days was to meet with Mr.
[Marcus] Wallenberg who was one of the leaders of Swedish
industry. He was an older gentleman and not well, so Harry took
me to meet with him at his summer house where he was just
recovering from illness. He greeted me in a sweater, and then
grilled me for an hour about how I was going to do this, and what
my strategy was and my philosophy, and then decided to invest.
It was probably less than six months later that he died, so it
was one of the last investments he made. It was a thrill to be
able to meet him, and he asked some of the best damn questions as
well.
Hughes: Different ones than you had been asked before?
Swanson: Yes, different ones, somewhat reflecting the Swedish viewpoint.
Look at the success of Sweden in this technology and a lot of
others. In a very small country, they ve educated very well;
they ve done very well competing on the world market. One of his
questions was, "Well, America always does things in a big way.
But how many people can you really talk to in depth in one day?"
So in one sense, everyone is limited by the amount of
interactions that you can have in a thoughtful way. I thought it
was interesting.
Hughes: Have we mentioned all the members of the original board of
directors?
Swanson: Don [Donald L.] Murfin of Lubrizol was in charge of their venture
group and was the one who made the early investment. I think it
was $1.1 million that funded the development of human insulin,
and the next investor to come in was Lubrizol. In 79 I think it
was, after the success of insulin, they put in $10 million at
about a $66 million valuation for the company. So when we had
produced human insulin and had a contract with Eli Lilly, we had
created a lot more value. The company s value went from $11 to
$66 million. The next step up was 1980 and the public offering,
which was the next major round of financing.
Hughes: Who represented Fluor?
Swanson: David [S.] Tappan came on after the public offering. Dave Tappan
is still on the board today, as is Don Murfin.
Hughes: Do we have everybody on the original board?
54
Swanson: Well, at the time of the public offering, there were just four of
us. So it was Boyer, myself, Perkins, and Don Murfin.
Scientific Advisors
Hughes: How about the early scientific advisors?
Swanson: I don t remember who they were. Is there something in these
documents?
Hughes: No.
Swanson: I know we had people as advisors-
Hughes: Maybe you didn t feel you needed more than Dr. Boyer, although
you said last time that Goodman and Rutter had signed a contract
and then reneged.
Swanson: We tried to get them to be advisors. I m trying to remember. A
lot of companies would make big lists of their board of
scientific advisors as a way of selling their company by
association with people of great scientific repute, and it still
goes on today. We never did that. We had people that were
helping; you d have to say Boyer was an advisor, as were Riggs
and Itakura, but they were related to what we were doing.
Hughes: They were also, at that point anyway, not big names that would
attract a lot of interest from investors.
Swanson: Right. No, we went for expertise. And I think you correctly
characterized it and helped my own memory in the sense that part
of the reason we were interested in Goodman and Rutter and some
of the people that were working with them was because it was
clear that at some point in time this cDNA technology was going
to work, and that was an important complement to our own
synthetic DNA approach, and maybe eventually would in fact be the
way it was done. You actually need both, because you can t hook
up cDNA for expression without some of the synthetic DNA, or you
couldn t at that time.
55
Postdoctoral Students Opting for Industry Positions
Hughes: Axel Ullrich came to Genentech in 1979. : Did he represent cDNA
technology? Was that the way you acquired that technique?
Swanson: Well, both he and Seeburg came to Genentech.
Hughes: Because of cDNA? Is that why you wanted them?
Swanson: Well, they were great scientists. Yes, they were very good
scientists, and they were interested. Seeburg was always
interested in human growth hormone; that was something he was
driven to do. I think both of them felt that Genentech was the
best atmosphere to actually get the thing done, that they could
move more quickly at that point in a corporate environment than
an academic one .
Hughes: They were coming from a very stormy time at UCSF. 2 Ullrich was
in the middle of the episode in which the wrong plasmid was used,
Swanson: I don t remember--! know they had difficult times, and I think
they were both in Howard s lab. Or not?
Hughes: Yes, they were both in Goodman s lab, but Seeburg had more
support, because he had [John] Baxter backing him.
Swanson: He had Baxter, and John Shine was there too. Well, we tried to
hire all three. They were at the beginning of their careers;
they were working hard to build their reputation. Boyer s idea
was and this was sort of different than the academic worldhe
said, "Let s give them the credit." He didn t put his name on
the insulin paper. And that, for a postdoc, is pretty
attractive, rather than having your boss trying for the credit
all the time and to keep you as the worker. For John Shine, the
pull of Australia was just too strong, but Seeburg and Ullrich
were available here. All postdocs go on to something else, but
it was very unusual at the time that they would choose industry.
Hughes: I interviewed Ullrich briefly, and he said he was a young man
then and being employed as a Genentech scientist was an
interesting thing to try. And if it didn t work out, he still
had time to do something else.
Hall, Invisible Frontiers, p. 280.
2 See the previously cited ROHO oral history of Dr. Rutter, and the
ROHO oral history in process with Dr. Ullrich in which the contention in
the late 1970s in the UCSF biochemistry department is discussed.
56
Swanson: Well, that s great. That statement is very enlightened in that
time period, because this is the same period where Boyer was
being widely criticized by his peers for selling out to industry.
Hardly anybody was willing to take the risk of being associated
with the evil corporation. Axel was one of the few people that
said, "Okay, I think I can do good science here, and I can see
that some of the products get out there to benefit people."
Hughes: Were those the two lures for getting scientists to join
Genentech? Good science and social benefit?
Swanson: Yes.
Creating a Setting Attractive to Academic Scientists
Hughes :
Swanson:
How did you spell out good science?
you?
What did that term mean to
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Well, it was always clear that we were going to publish our
results. Everybody wanted Nature or Science or another good
journal to publish their work, and so what we did had to be of a
quality that would be published. So we said, "Look, let s
publish the results; let s make sure we get the patents, and
we 11 make the patent attorneys work overtime to get them filed
before you actually get the papers out. But we ll have to work
together on that."
So what you seem to have been doing is creating an industrial
version of the academic world, where scientists really still are
king, so to speak- -
Oh, yes.
--and have the perks of academia and some extras-- [laughs] some
big extras. Industry scientists do not usually have to worry
continually about how they re going to support their research and
themselves .
Right. So the advantages were freedom from seeking out grants, a
chance to be owners of the company, so they had equity, and as
the company thrived to have the value of their stock go up.
Could you in addition to the equity offer them higher salaries
than they were making in academia?
Oh, yes. Postdocs continue to be very poorly paid. So yes, we
could offer them good salaries.
57
Hughes :
Swans on:
There must have been some restrictions on publication,
there a review process or something?
Wasn 1 t
Hughes :
Swan son:
Hughes :
Swans on:
Hughes :
Swans on:
Obviously the research had to be appropriate for publication.
And review was appropriate to get the patents filed, if any,
before the research was published so that we d have full
protection. Again, Boyer s philosophy, which I agreed with, was
that you gain more from interaction with your academic peers than
you give up by telling the competition where you are. So with
interaction you can move quicker; you gain more people willing to
collaborate with you.
We knew then we weren t going to have all the best ideas,
and we said, Well, where do the academic scientists go when they
have an idea that they think needs to be commercialized? We want
them to think of us first. We want them to come to Genentech
first, because this is a group of scientists that are well
published and that a university scientist would be proud to
collaborate with on a scientific basis, and where I know they can
get this product developed and make it available. So that was a
goal from the very beginning.
Is that an instance where Herb perhaps set the pace? After all,
he was an academic scientist.
Our philosophy about people was very much the same. We were just
coming from different points of view. Hiring the best people,
giving them enough flexibility to do good things, giving them the
credit when they do it. Obviously, if you didn t have to publish
to get the best people, you wouldn t do it. On the other hand,
it was very clear that in order to get the very best people, you
had to have this philosophy. And Herb always had the philosophy
of being much more open. I could see the benefits of it. Yes,
clearly, he led in the academic side of things.
But there could have been a clash of culture. In industry, the
tendency is to keep knowledge within the company, right?
Right .
So did you initially take some persuading?
We talked about how we were going to accomplish this. No, it
wasn t an argument or anything. It was rather, hey, we have to
get the best people. How do we get them? So it all came from
the philosophy, get and keep the very best people. And they were
all in the academic world; how were we going to get them to come?
Well, Herb said, "I know them. If we let them publish, they ll
come." [laughter]
58
Involving Scientists in Business Aspects
d say, "Well,
of sounds like
It s
Hughes: You have these two cultures to this dayacademic and industrial.
You hope that their goals will be in sync, but they re not
always, particularly in those early days when any scientist who
came to Genentech had little knowledge of how business worked.
How did you go about blending those two cultures?
Swanson: I would greet all the new employees and talk about the corporate
philosophy, and the philosophy included great science and
publishing our results and all those aspects of it. It also
included the desire for profitable growth. So I d take people
through who had no experience with industry, and I
why do we want to be profitable?" Because it sort
a nasty thing. I said, "Well, what is it really?
understanding well enough what your customers needs are so that
you can design a product that they ll buy, and they re willing to
pay you more than it costs you to make it. The difference is the
profit. So the better you understand the customer, the more
valuable the product you make, the less it costs you to make it,
the bigger the profit is that you get to keep."
So this is really a measure of health of a company, of how
they do these important things. And people would say, "Oh, I
never looked at it like that." So that was one part of saying,
"It s important to involve the scientists in the business
decisions." They re very bright people. They don t know a lot
about business, but they sometimes ask some good questions. So
with those questions, you re going to involve them. You have to
tell them the truth, and you have to be willing to change your
approach if they come up with some new ideas .
I*
Swanson: They come from out in left field someplace, and you say, "Well,
that s a good point." But you have to be willing to do that, or
else they say, "This is just fake."
The other thing that helped us out early on and contributed
to everybody- -not that there wasn t always a little bit of "them
and us" going on, but basically, it went very, very wellwas
that the scientists were also responsible for generating the
revenues early on. And so when we set up licensing agreements
with the Japanese or the Europeans for some of these products,
the agreements said, "Gee, these products are really valuable,
and if they get to the market, they re going to be worth millions
of dollars. But we haven t made them yet, and they haven t
gotten to market yet. So agree with us that they re worth
millions of dollars. But as we deliver results that move this
59
product closer to the market, then you pay us a little bit more.
So once we get it cloned, well, we ve created some value, so pay
us a million dollars. Once we ve delivered you ten grams of
material, we ve showed you that we really can scale up this
process, you have the ten grams, you can start doing your animal
work, then you pay us another--" whatever the amount was. "If we
have successful phase-one clinical trials that show it s safe in
people, pay us another five. So only pay us once we ve delivered
the results . "
Well, who was responsible for delivering those results? The
scientists. And it was wonderful because they understood that we
were trying to break even as a company so we wouldn t have to
continually raise money and dilute the stock, and that they were
responsible. Who made the ten grams of material? Somebody had
to do that. And at some point when we were public, I remember
scientists staying up until eleven o clock at night on March 31
to ship ten grams of material to Japan so it would make it into
the first quarter, because there was a million dollars riding on
that. And that million came and paid for expenses.
So the structure of the arrangements, the break-even goal,
all worked with the philosophy of involving scientists in
decisions and in the business side of things. I think it went
really well.
Hughes: You were in it together.
Swanson: Yes, we were all in the same thing. Success in the science
translates to success in the business. And it was also wonderful
because the goals that we set for these collaborators as having
value for them were also the same goals we needed for ourselves
to drive these products to the U.S. market. And so there was no
or little extraneous effort. Everything was focused toward the
same thing: How do we get this product into the marketplace?
The Stepwise Approach to Product Development
Hughes: I can see that it would serve you as the director of this company
to have very tangible, set goals, not just, "Make insulin."
Swanson: Here s step one, two, three --
Hughes: Was that a new way of doing things? Or had industry been using a
stepwise approach: you achieve a goal and you get a payment; and
you achieve the next goal and get a payment.
60
Swanson: No, we invented it.
Hughes: Out of what?
Swanson: Necessity! [laughter] Part of it was driven by this goal. I
had heard so many companies say, "We re going to lose a lot of
money this year, but next year we ll be profitable." And then
next year, it s the year after, and it s the year after that. I
said, "This is not good for the whole psychology." So I wanted
to try and drive our company to the break-even point and have
people focus on that, have the whole company understand we re
going to try and cover our costs as we go. We don t know when
these products are going to get on the market, but if we re
covering our costs as we go, then if it takes an extra year,
we re not out of business.
And so that drove, "Well, this is a really valuable product
we re developing. This has got maybe a $200 or $300 million
market. We can t license it for $30 million now because, well,
it s not worth $30 million today. But if we ever had it, we had
cloned it and we were making it, it would be worth that much."
So then we said, "Well, how do we capture that value, yet do the
deal today so we can pay for the development?" And out of that
came the steps .
Hughes: I see.
Swanson: And it all came from, What is it that creates value in what
you re doing?
Hughes: Did the scientists take the monetary value of what they were
doing as an added incentive? Or was that a drawback? Was that
corrupting science somehow? Of course, they probably wouldn t
have been in industry if they really had that philosophy.
Swanson: We had the whole spectrum of viewpoints in the company. I think
having a monetary incentive was really a positive, simply because
they were doing something that helped make the company
successful. They could see in a very real, tangible way what
they were doing had immediate impact on the well-being of the
company. So it was a very positive thing. Now, was there
grousing about, "Oh, my god, he s set another goal for us"?
There probably was that too. But by and large, people felt
really proud. "Hey, we did it!" So that was nice.
61
The First Genentech Scientists
[Interview 3: January 24, 1997] #//
Involving Scientists in Scientific and Business Matters
Hughes: You said in 1983 at a talk you gave at Stanford Business School
about the management of Genentech science: "It s easy. We don t
work on any projects we can t get someone excited about.
(Sometimes it takes longer than others, but we never change that
rule.)" 1
Swanson: Well, I think the key to any organization is hiring outstanding
people, and helping them get excited about what they re doing.
If they re really not interested in a project, they may be
working on it but they re not tackling it with love and passion.
So the decisions of the projects to work on were very much made
not only from the business standpoint but from a science
standpoint. In those early days, you had scientists coming from
the academic world. So we very much got them involved in the
discussion about what was it we were going to work on, and we
tried to work on those things that were an overlap of our
business and their scientific interest. The way Boyer used to
draw it was two circles that overlapped. One circle contained
the things which were very exciting from a scientific standpoint
and pushed the edge of the science envelope. The other circle
contained things that could be important products to treat
diseases. So if you could find the overlap of those two things,
you had very motivated scientists and good business.
A Rejected Project
Swanson: Just one example of where we didn t do something: one of the
leading tobacco companies was very interested in having us work
on an enzyme that would fluff up tobacco. The idea was that they
could then use less tobacco in each cigarette because the enzyme
would expand its volume. The benefit would be lower nicotine for
smokers. It wasn t our mainline business but I thought, okay,
you get a royalty of so much per cigarette, so maybe we should
help them since this wasn t a terrible thing. The scientists
said, we re not going to do anything involved with smoking. I
said, "All right, we re not." It wasn t a mainstream decision,
12.
^Robert Swanson], "Stanford Speech," Stanford Business School, p.
62
but it illustrated that decisions were made jointly between the
business side and the scientific side.
Choosing Research Projects
Hughes: Did you recruit early scientists to a specific project? "If you
come with me, you ll be working on insulin." Or was it, "You
will be coming to work at Genentech at whatever projects seem to
be the right ones for the company to pursue."
Swanson: It varied greatly with the scientists. Some people were bringing
with them the projects that they were working on. Others were
asked to change direction. They were great scientists but they
were asked to change direction and work on some different
project.
Hughes: And they knew that?
Swanson: They knew that when they came.
Hughes: Did scientists have any time to pursue their own research
interests?
Swanson: Yes. Part of the whole philosophy was that everybody should have
a percentage of their time, as I said, to follow their nose, even
though you had to put the majority of your research focus on
those projects we agreed upon. We needed people exploring for
what might be next, and it didn t usually take a lot of time.
But that ability to do that was key to attracting some of the
best scientists, and out of that poking around came some of our
next products.
Hughes: So the "poking around" was definitely with a product in mind. It
wasn t just pursuing basic research interests that they may have
come to the company with.
Swanson: Some of them did that as well, but we tried to make sure
everybody understood that the nature of this company was to turn
basic research into products that cure diseases. So if they
weren t interested in that general goal, then they usually didn t
come. The distance between basic research and the product is
pretty short in this field. So maybe their basic research is to
understand better how a particular system works, and once you
understand it, then you have the idea for the product. They
always had that flexibility.
63
Boyer s Scientific Guidance
Hughes: What about Boyer? In the beginning his activities, as you ve
described, were pretty much limited to his UCSF laboratory. Did
he ever spend much time at Genentech kibitzing with scientists or
somehow directing the scientific effort?
Swanson: Herb was always interactive, primarily at the board level where
the basic questions of which projects we should work on were
decided. He had a clear insight of what the technical
feasibility was, and where you couldn t push the science too far.
Was it ready now? That was a key contribution.
Hughes: He was the only one on the board who had that kind of knowledge,
right?
Swanson: Yes.
Hughes: I m trying to picture the board.
Swanson: The board was very tiny. It was he and I and Tom Perkins for
many years .
Hughes: Yes, and later when others came on-- [David] Packard, for example
--they came without specific expertise in recombinant DNA.
Swanson: Boyer was always the one. I think his judgment calls were
critical, such as picking chemical synthesis of DNA versus cDNA
technology to make human insulin. cDNA technology was just
blossoming, but it didn t work all the time and the techniques
hadn t been perfected. He made the decision, "We know we can
synthesize DNA for human insulin. It may take awhile but we know
we can do that." I think it was a very important call.
The other thing that Herb did in those early days was wander
around the labs as I did. Where my job was, "Okay, where are we
on this," and to act as cheerleader to get people fired up and to
coordinate between the groups; his was, in a sense, a scientific
sounding board. "Okay, here s how I m approaching this." So he
was somebody to talk to about the scientific details. He did
that very well.
More on the NIH Guidelines
Hughes: Was it also in your thinking that the synthesis of DNA would not
fall under the recombinant DNA guidelines?
Swanson: That wasn t the primary reason. That was a lucky-strike extra,
because we followed the guidelines. We voluntarily, from the
time they were announced [June 1976], we followed the guidelines
--always. So that wasn t a very important part.
Hughes: What was your thinking in following the guidelines when as a
company you didn t have to?
Swanson: I felt that they were reasonable in that it was important for the
entire industry (which to a large degree was us at the time) to
follow these voluntary guidelines. That way the government could
keep them as guidelines and avoid the mistakes that the Japanese
and the Dutch made when they turned them into legislation- -which
was much more inflexible and actually caused a great delay in the
development of companies in those countries, [pause] Every six
months the guidelines would be reviewed, and the NIH Recombinant
DNA Advisory Committee would say, "Gee, there were no problems,
let s reduce them."
New University-Industry Affiliations
Hughes: Was criticism from university scientists for having moved from
the "pure atmosphere" of the university lab into industry
something early Genentech scientists had to bear?
Swanson: Yes, they did. It made it very difficult. As you know, we got
Herb Heyneker, the first scientist we hired. Basically, we had
to go to Holland to bring him back. The only reason we got him
is Holland had passed a law prohibiting recombinant DNA research.
I remember later trying to hire Art Levinson who was working as a
postdoc in [Michael] Bishop s lab at UCSF; Art Levinson is now
CEO of Genentech. He was being recruited by [James D.] Watson at
Cold Spring Harbor [Laboratories] and a number of other places.
All of the professors told him he was completely nuts even to
think about joining an industrial company, and they just couldn t
understand why he might even consider it, let alone why he did
it.
Hughes: Why did he do it? [laughter]
Swanson: Well, I think you can talk to him about that. I think he saw it
the way a lot of people did: this science is blossoming, and we
see how we can use this to solve important medical problems, and
Hughes :
Swans on:
Hughes :
Swans on:
65
we want to be part of the conversion of this basic research into
something useful.
Commercial application was a new idea in biology, was it not?
Biologists had been oriented towards basic research, and, if
there was an application, it was somewhere off in the distance.
Right, this was really the first time, except maybe in the area
of plants, where academics in biology could see what they did had
a more immediate application to commercial purposes.
Who was hooked by that notion?
others?
Why some scientists and not
Hmm. I don t know. In anything new, you have some people that
are more willing to take risks than others , and that s what we
saw there. [interruption] You could see it in the personality
makeup of the scientists who were among the first versus those
who came later. Among the early scientists, there were more
explorers open to trying something new before it had been proven.
The Palaro Dunes Conference on University-Industry Associations,
March 1982
Concern in Academia about Commercialization
Swanson: The other thing was how this new link between academic biology
and industry caught biologists by surprise, and it also caught
some of the academic professors and university presidents by
surprise. You had mentioned [off tape] the meeting at Pajaro
Dunes [California] , which was very interesting. I remember the
exact time it took place [March 1982] , and here you had the
presidents of five universities and provosts and deans and a
number of people from industry whom they invited. You had two
people who were very concerned: Presidents Donald Kennedy at
Stanford and Derek Bok at Harvard. Then you had Presidents David
Saxon from the University of California and Marvin Goldberger of
Caltech and Paul Gray from MIT. The three of them said, "Well,
this [commercial application of recombinant DNA] is nothing
different from what ordinarily happens. As a new science
develops in the academic world, it eventually has commercial
applications, and the science is transferred to industry, and
people from the academic world migrate to companies . "
But both Kennedy and Bok were really disturbed. They
thought that this was going to wipe out scientists in the
66
academic world- -everyone was going to leave. They were concerned
about the progression of the science. It actually was very funny
because Kennedy was almost dictating, and Bok was writing down
the notes of the meeting, and everybody else was saying, "What s
the big deal?" It was a lot of fun. In a sense, it reflects
your question about the newness of biologists to this commercial
side. [silent while Swanson reads documents]
Herb, I thought, did it very well. It s good that we were
the first and we set the standard, but it looked even better by
comparison after a number of years where he said that his own
research in his [UCSF] laboratory went in a different direction
than the company s. He acted as a director and consultant to the
company, but he continued to teach and do his own research at the
university; continued to follow his nose into new research areas.
It seemed to me that having made that choice, Herb handled it
very well.
Turmoil at Harvard, circa 1982
Hughes: At about this time, there was considerable turmoil at Harvard
over Wally Gilbert s connection with Biogen and the question of
whether Harvard was going to be a part of that venture. I wonder
why he wasn t at Pajaro Dunes.
Swanson: I don t know. One of the concerns in the academic world was
triggered, to some degree anyway, by the way Wally Gilbert
handled his starting of Biogen. He wanted the best of both
worlds : to maintain his tenure at Harvard and yet spend one
hundred percent of his time making money and working for and
building Biogen. I think that triggered a lot of concern and was
inappropriate. As you make that transition, you have to make the
call: do I want to be a university professor or do I want to be
an entrepreneur?
Hughes: Well, let s establish the setting for Pajaro Dunes. It was March
of 1982, and it was a conference which Donald Kennedy had
originated.
Swanson: Clearly he was one of the leaders.
67
Daniel Tosteson
Swanson: Before I forget, I might mention one thing. One of the people
that most impressed me there, Dan Tosteson, was dean of the
School of Medicine at Harvard. My relationship with him started
there because of the reasonableness of his approach on this whole
subject of the relationship of academics with industry,
[interruption] He was very thoughtful in his approach. So later
on when I was looking to have a medical doctor join the board,
and one from the East Coast to give us that view of the world as
well, I went to ask him. He felt that he couldn t do it because
of his position but introduced us to John Potts, who was head of
the department of medicine at Mass [achusetts] General Hospital,
who did join our board. For years now and at Dan s request I ve
been on the board of fellows at Harvard Medical School, which has
been a nice long-term relationship that started here at Pajaro
Dunes. One of the nicest things Dan said was that he wished he
had made a different decision, that in retrospect it would have
been okay, and he would have loved to have been on the board.
So, it was very nice, and I still enjoy seeing him a couple times
a year at the Harvard Board of Fellows.
Donald Kennedy and Derek Bok
Hughes: Well, the way it apparently went was that each university
president was told that he could invite five people to the Pajaro
Dunes conference. Who invited you?
Swanson: Actually, Kennedy was the person who invited me; I was under the
Stanford umbrella. It s interesting because most of my
relationships were with the University of California at San
Francisco and Caltech and of course my alma mater and people I
knew very well were MIT. [laughs] So it was very funny that I
was under the Stanford umbrella.
Hughes: Well, describe what went on.
Swanson: Well, I described a little bit earlier that Kennedy at Stanford
and Derek Bok at Harvard were the two individuals most concerned
about the technology, the risks, the loss of people from the
academic world to industry, and how to structure relationships
with professors who were interested in starting companies. By
and large, people from MIT and University of California and
Caltech thought, "What s the big deal; this thing has been going
on forever in chemistry and physics." I think it may have been
that Don Kennedy was a biologist and Derek Bok was a lawyer. So
68
Kennedy expressed his concerns and Bok wrote them down as
minutes. [laughing] It was a lot of fun, but what a group of
people was there !
Agenda and Access
Hughes: This is an excerpt from an account of Pajaro Dunes in Science:
The conferees at Pajaro Dunes set no policy,
reached few firm conclusions, and failed to agree
on some of the more contentious issues, leaving
their resolution to individual university
faculties. What they did do, according to
Stanford University president Donald Kennedy was
"get some general principles on the record" and
"set an agenda for further discussion of the
issues. Ml
Was the intent to have a discussion but not to set firm
guidelines? Do you remember how the conference was described at
the outset?
Swanson: I don t remember. What this reminds me of was the big brouhaha
about people wanting the conference to be open. It wouldn t have
worked at all that way because you needed attendees to be free to
express their interests without some of the more radical groups
that obviously wanted to be there.
Hughes: I wonder whose decision it was to close the conference.
Swanson: I don t know. It must have been Kennedy s, but it s only my
guess.
The Biohazards Issue
Swanson: We forget, with the products that have come out of biotechnology
and the success and the safety that is evident, what an
incredible uproar it caused in those days. You had the New York
Times with an editorial against the technology. You had the city
Barbara J. Culliton, "Pajaro Dunes: The Search for Consensus,"
Science 216 (1982): 155-6, 158 (April 9).
69
of Cambridge prohibiting it within its borders. It was
completely crazy.
Hughes: Yes, and Derek Bok had just lived through that. So you can
understand why he was edgy.
Could you understand people s concern? Was it ever in your
mind that this technology could lead to problems?
Swanson: [pauses] It really was never a concern of mine. I felt a lot of
the discussion in the press and the verbal concern outside came
because of an overreaction to the Asilomar Conference, in which
you had a group of scientists being very responsible and saying,
"Well, let s explore this new technology to make sure it s safe."
[interruption] So, they took a very responsible approach at
Asilomar, and the reaction from the outside world was, "Oh, my
god, scientists have never done this before. If these guys are
at all concerned, this must be really dangerous." As Herb used
to say, if you understand biology and how difficult it is to
survive as a microorganism in any of these niches, if you change
them and weaken their competitive advantage, they re not going to
survive outside. There was a time when somebody at some
university drank a liter of E. coli bacteria just to show it was
safe. There were lots of things going on there, but I think it
was largely overreaction. Yet, I thought because it was done in
a responsible manner by the scientists who set up these
guidelines, that we should follow them.
Swanson 1 s Opinions on Issues in University- Industry
Associations
Hughes: Let s return to Pajaro Dunes. There were several issues
discussed, and one of them was whether research contracts between
universities and industry should be made public. Another issue
was, should universities be allowed to grant exclusive licenses
to for-profit companies? Should universities invest in companies
in which one of its faculty members is a major stockholder?
if
Hughes: Can you remember some of the discussions?
Swanson: I remember all those issues. Many of them are still being
discussed, so they haven t gone away. I have very clear opinions
about them. The first one is, can an academic scientists be
involved in industry? At some point they have to decide whether
they re an academic scientist and a teacher and a researcher, or
70
they re an entrepreneur. I think most universities say that you
can be a consultant for maximum one day a week. So as long as
you re within the guidelines of the university, and your heart is
in teaching and research, then that interaction is appropriate.
If not, you should leave the university and join the company.
Industry Funding of Academic Research
Swanson: The next issue at Pajaro Dunes was related to whether the
companies could fund research in these academic laboratories.
Before the major government funding of research, it was all
funded by corporate interactions. While they had forgotten that,
no one was too concerned about the corporate funding of research.
But still today there s concern if the funding is in the
laboratory of the person who has some interest in the company.
There the concern is, "Gee, how can we keep him from using his
graduate students as slaves to make money for his corporation?"
Hughes: Do you see that as a problem?
Swanson: I see it as an issue but not a problem because scientists within
the academic world should be limited to doing work that is on the
forefront of science. They re not a production department for a
company. I think that issue can be dealt with by full
disclosure: What is the research that the company s funding in
the laboratory? Who is involved in it? Do they understand that
it s a contract from the company? Is this the kind of research
that s appropriate for the academic world? If it s disclosed and
the provost or whoever just reviews these contracts on a regular
basis, you d eliminate all the issues. The universities want to
have that kind of interaction --without somebody misbehaving.
And why do they want it? Well, I can give you an example. MIT
still doesn t allow this, and I know some other schools don t.
Hughes: Don t allow--?
Swanson: Don t allow professors to accept funding from companies in which
they have an interest. But the reason you want that from the
point of view of the company and an academic point of view is
that the person with the greatest incentive to see that the
research is done as quickly as possible and the results are got
out are the people involved in it, and they re driven to get
those results. So probably the best way to get the research done
is to have somebody do it who is interested in the project,
because he s shown that interest, and he s been involved in the
company that is sponsoring it.
71
I ll give you an example where it goes completely crazy and
is uneconomic. A company I m involved in in Boston has
professors from MIT who are consultants and shareholders.
They re not active at the company, but they own some shares and
are consultants. The company cannot fund research in those
professors laboratories, so it s funding at Harvard with
somebody who doesn t have the same degree of enthusiasm, and MIT
is losing out on that source of revenues. The research doesn t
get done as well. So I think it s an issue, and I think the way
to solve the issue is through full disclosure, and basically most
people do it right to begin with.
Hughes: If this became a pervasive mechanism, would there not be the
danger of shaping university research projects for commercial
application? And in the long run maybe everybody would lose out
because industry requires the information, the knowledge, that
comes from basic research?
Swanson: Well, the thing that comes out of the university is that all the
professors there have to publish. So any of the arrangements
they make always include the absolute right to publish the
information so the research will be out in the public domain. So
there s not an issue. Your question is maybe more basic.
There s a debate within the NIH about how much money should go
for a war on cancer versus a basic understanding of cell
mechanisms and things like that. The same debate goes on within
the academic world. I think it probably comes back to a balance.
It comes back to what we want as taxpayers. Why are we
comfortable that part of the taxes we pay to the government goes
for government funding of basic research? We hope that basic
research will lead to discoveries that eventually can be licensed
to industry to develop products which will come back and benefit
us. So we hope that the decisions get made in that environment,
that is, the right mix between basic and more applied research,
that gets those products cycled back to us.
Exclusive Licenses
Swanson: This comes to the last point you talked about, which is the
appropriateness of licensing technology from an academic
institution to a corporation on an exclusive basis, and maybe
even a tiny company versus a giant pharmaceutical company. [tape
interruption] I think that can be approached from several
directions. One is the basic understanding that nobody will
invest their money in something unless they know they will have a
return or at least a chance of having a return from that
investment. Part of that understanding comes from what kind of
72
patent protection can be achieved. So you would feel better
about investing your money if the results of the research could
be patented and then licensed exclusively to wherever you were
making an investment.
[Alexander] Fleming donated his discovery to the benefit of
the world, but eleven years later there was not enough penicillin
available to save one man s life. It wasn t until World War II
that production of it really took off. Part of the reason was
that there were no patents, and English industry didn t invest in
it because they were sure the Germans would come up with a
synthetic way of doing it that didn t require fermentation. Yet
here was a donation of a discovery to the benefit of the world,
and it didn t go anywhere. It s clear that someone has to have
an interest in the success of a discovery and to think that their
investment will earn them money in order for it to work. So
that s why patents are so critical to the development of drugs
and the transfer of this technology.
Now, would you invest more money in the development of a new
technology if it was licensed to ten other people at the same
time or was licensed exclusively to you? You d invest more money
if you had the exclusive rights to it because you would know that
at least for the period of time that you had this legal monopoly
of the patent, you would have the ability to defend that right by
trying to keep other people out. Eventually when the patent ran
out, you d have competition.
So then the question becomes big companies versus small
companies. In some ways the small companies are completely
dedicated to seeing projects through to a successful conclusion.
If the product doesn t get to the marketplace, they don t
survive. So it s a decision that licensing departments of
universities have to make in terms of how to get the discovery to
the market the quickest and also how to maximize their return for
the invention. The U.S. government has said universities, even
though the taxpayers pay for public universities, get to keep the
technology rights and earn royalties and all that , even though
they can t be in the business of making and selling commercial
products. Oftentimes the university opting for the small company
can get equity and thus increase its return over what it might
obtain by licensing the technology to a larger company for a mere
royalty.
73
Summary
Swanson: We ve talked about a bunch of different issues related to
technology coming out of the academic world and how it gets
commercialized and what should be the interactions between the
professors and corporations. I can summarize my beliefs. Among
the greatest strengths of the United States, and they don t exist
today in almost any other country in the world, are the ties
between the academic world and the commercial world, and the
speed with which new technology can leave the university and be
commercialized by an early-stage company, and get out to benefit
the people who are actually paying for the research through their
taxes. So that s a real advantage to the people of the United
States, but also to the country s competitive position in the
world. No one can do it like we do it.
Hughes: Where do you see this going? Industry having a larger role in
all areas of production and research?
Swanson: Well, it almost becomes a political philosophy. There are so
many demands on the tax dollars, from funding for Medicare to the
military to highways. I still believe that the country is better
off if the government continues to fund basic research at the
university because it provides such a strong base of knowledge
which can then be commercialized. It really is an advantage to
us as a country, so I believe it should be continued. Now,
tradeoffs have to be made with limited dollars, and certain
funding is getting tighter. Industry can never match those
government dollars. I think the total spending for the
pharmaceutical industry is about equal to the NIH budget, maybe a
little less, maybe a little more. At one point, I remember
looking at the numbers and they were both about ten billion
dollars or something, and they ve both probably gone up quite a
bit since then. There s no way that industrial funding of basic
research in the university could ever take the place of
government funding, so I don t think that s a risk. But what is
a risk for the country is that the funding of basic research
decreases to the point that it no longer provides tools that
companies can use to develop new products.
74
Genentech Expansions
Sansome Street, San Francisco
Hughes: Genentech was not always at Point San Bruno in South San
Francisco. Do you want to talk about the earliest locations of
the company?
Swanson: Sure. My philosophy was that until we knew that we could use
this technology to make a commercial product, it didn t make
sense investing in bricks and mortar. So from the earliest days
(and we talked about this), I set up agreements with Caltech and
City of Hope and University of California, San Francisco to fund
basic research to prove whether you could make a human hormone in
a microorganism. These institutions would receive royalties if
there was success with that. So we funded the costs of research
plus overhead. So in those early days I needed a place to
operate because it was basically myself as the only employee. I
was able to get an office in Wells Fargo Bank s venture capital
office in San Francisco. They had some very nice offices, but the
junior people had all left. The head of that operation actually
leased space to me. I leased an office and a part-time
secretary. She kept track of her hours, and I got a bill at the
end of the time. I think the first capital purchase for
Genentech was a filing cabinet. Wells Fargo didn t have any so I
had to buy my own.
I worked out of there and negotiated agreements with the
universities and City of Hope and then was responsible for
oversight. The DNA was being synthesized down at City of Hope
and Caltech, and when they got segments, I d bring them up to
Boyer s lab at UC. They were linking the segments together and
doing the cloning. The expression work would go back to City of
Hope where Art Riggs would do that . So I was very much involved
in the logistics of this research project from the office at
Wells Fargo, as well as trying to build a company and raise the
money. It was a very tiny office and I d have to go over to the
offices of Kleiner & Perkins, which were at number three
Embarcadero. My office was on Sansome Street. Two-twenty
Sansome, I think, was the address of this Wells Fargo Bank annex
building. If I had visitors, I d say, well, I ll meet you at the
investors office, because they had a conference room we could
use. [laughs]
75
Hughes: Well, you make this approach sound very common sense. Yet, I
read in an article in Esquire 1 that you were violating several
implicit rules of high-tech entrepreneurship as practiced in the
Silicon Valley in the 1970s, where money was heavily invested in
the plant and equipment. The way you tell it, it was just an
expediency.
Swanson: It was mostly common sense. We all believed we could do it, but
no one had done it before, and when we finally hooked up the DNA
for somatostatin the experiment for expression actually failed.
I got physically sick because I said, "Oh my god. Oh, this is my
career." Well, it may have been the Mexican food that we had
that night [laughs], but I was not feeling well. And then a few
months later we succeeded. But it would be silly to invest in a
plant and equipment and laboratories until you knew that the
technology was indeed ready for commercialization.
Point San Bruno, South San Francisco
Swanson: So, as soon as we succeeded in expressing somatostatin, I started
looking for space. Through some social arrangement, I met Bill
Banker, Jr., who was the son of a founder of Coldwell Banker. He
took me around looking for space in South San Francisco, trying
to find a place where we could set up our first lab. We finally
found a corner of a very big warehouse, which I thought was
terrible at the time because it had all these air freight
forwarders in there. It turned out to be very lucky. Sometimes
you get lucky even when you don t try because eventually as we
grew, we were able to buy them out of their leases and grow down
the building without actually moving from one building to
another.
The First Genentech Scientists
Hughes: The successful somatostatin experiment was the impetus for moving
from Sansome Street to South San Francisco?
Swanson: The successful expression of somatostatin was, because at that
point we said, "We know that we can make these proteins in E.
coll."
Randall Rothenberg, "Robert A. Swanson, Chief Genetic Officer,"
Esquire, December 1984: 366-74.
76
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Insulin had not happened?
Insulin had not happened, but the lab was set up to do it. So
then we hired Herb Heyneker and Dave Goeddel and Dennis Kleid.
David and Dennis came from SRI [Stanford Research Institute] .
Those were the first three scientists. We built this little lab
in South San Francisco, and they joined. The DNA was still being
made at City of Hope where we helped finance an expanded lab
there to do that. We were doing the cloning and expression work
at Genentech. So the first real commercial product was at
Genentech.
Did Heyneker, Kleid, and Goeddel ever take over the actual
synthesis of the DNA? Was that always handled by City of Hope?
It was, until a little bit later. Then the second-in-command
scientist at City of Hope came to Genentech to head up the DNA
synthesis lab.
Who was that?
Roberto Crea.
You moved to South San Francisco in February 1978.
the time that Crea would have come?
Is that about
Crea wouldn t have come till after insulin. That success was the
summer of 78. So probably he came in the fall or the early
spring of that year. I m thinking about it in terms of expansion
of the facility. We had that first small lab, and after the
success of insulin we added a DNA synthesis lab and another
cloning lab. Peter Seeburg came about that time, along with
Roberto Crea.
And Axel Ullrich.
And Ullrich.
Didn t Seeburg and Ullrich come at the same time?
Seeburg may have been a little earlier. I m not sure.
Do you want to say anything about the recruitments of any of
these people that you ve mentioned?
I don t know if Roberto Crea was a postdoc. He had come from
Italy to learn under Itakura at City of Hope these techniques of
DNA synthesis. He had been responsible for doing the work for
the insulin gene at City of Hope. But he was always more
commercially oriented and Itakura was more academic, so Itakura
77
has gone on to do other scientific things there. Roberto wanted
to be part of a company. After he left Genentech, he started a
number of companies --one called Creative Biomolecules, with
"Crea" as part of the company name. He s a wonderful Italian man
and very enthusiastic. So he was anxious to come. We were in
this transistion from the academic world to the commercial world.
So here we were going to be synthesizing DNA for products we
brought into the company.
Hughes: What about the recruitment of Kleid and Goeddel?
Swanson: Herb Heyneker had, I think, already gone back to Holland. He d
agreed to join Genentech, and then he had to go back for some
reason and wasn t going to be back until the end of the summer of
seventy-six or -seven. 1 He had recommended Kleid and Goeddel,
who were in a small department at Stanford Research Institute.
Kleid had set up this department and had recruited Goeddel from
the University of Colorado. Goeddel had come here because he
wanted to be in California. So I went down and had lunch with
them and said Herb had recommended them and would they be
interested in joining. Kleid was more conservative, but Goeddel
said, "This is what I want to do. I m going." So finally Kleid
said, [laughs] well, it was his department, and he d better go,
too. So we got both of them.
Growing Genentech
[Interview 4: February 7, 1997] ##
Turning Genentech into a Fully Integrated Company
Hughes: Mr. Swanson, I just showed you some documents related to
Genentech s early history. One of them is a letter that
Middleton sent you in which he said that in December 1978
Genentech completed a business plan with "a strategy to become a
fully integrated manufacturer and marketer of genetically
engineered products." 2 Could you comment?
Swanson: Well, from the very beginning, I set a goal that as soon as we
could, we wanted to make our own products and sell them.
Obviously, we couldn t do that right away. We had to be careful
Heyneker returned in the summer of 1978. (TDK)
2 Fred A. Middleton to "Bob," April 6, 1979. (Chief Financial Officer
files, Genentech.)
78
which products we took first to do that with. With human
insulin, Eli Lilly dominated the market with 80 percent market
share. It was sold through pharmacies. It would have been a
very difficult product for us to take to market ourselves. On
the other hand, growth hormone --which was the first product we
did take through the FDA approval process and make and sell
ourselves --was then being distributed by a quasi-governmental
agency called the National Pituitary Association and was
extracted from the pituitary glands of cadavers. There was less
than nine months supply for the children that needed it, and
there was the risk of getting Creutzfeldt-Jakob disease or slow
viruses along with it.
So here was something where there were really no entrenched
competitors. We had an alternative that would be safer. There
were about five hundred pediatric endocrinologists around the
country who were treating these children. This was the kind of
product that a small company like Genentech might be able to take
to the market itself. Also, the government approval process--
although more difficult than we imagined because of our naivety
in terms of understanding what it took to go through that
processwas straightforward in the sense that either the
children were growing or not. So the end point was easy to
measure. Something like arthritis--"Does your hand feel a little
better today?"--is more difficult to measure, and it therefore
takes longer to accumulate evidence of efficacy. Here the trials
could be short and more definitive.
It was a goal from the very beginning to make and market
products as soon as we could. The first products we licensed to
others . We tried to keep some manufacturing rights but let other
people market. That -was the case of interferon with [Hoffmann-
La] Roche, but eventually we decided it was better to put our
energy into the products we could make and sell ourselves. We
decided not to exercise an option to manufacture a portion of
Roche s interferon requirements but continued to collect a
royalty from Roche.
Now, why is it that you need to be an integrated
pharmaceutical company? Over the long runand really the timing
is when you can achieve it--in order to capture all the value
from the research that develops a new drug that treats a disease,
you have to be able to make and sell that drug yourself, in part
to control the distribution of it, not relying on someone else;
and in part because you capture greater rewards by selling it
yourself. Over the long run, unless you capture those rewards,
you cannot invest as much in R & D that allows you to develop the
second and third products.
79
I saw a figure yesterday that to develop a new chemical
entity todayincluding the costs of all the ones that fail is
six hundred million dollars. I think it s probably overstated,
but it s a very big number. The total cost for us in developing
tissue plasminogen activator, Activase, was two hundred million
dollars before we got to sell one vial. So there s enormous
development cost before you get to sell anything. But if you
plan right, you are able to achieve patent protection for what s
left of the patent life after the time it takes you to get
approval. So the margins you are able to achieve and need to
achieve in order to fund the next round of research can be in the
80-85 percent range. You can compare that to, say, a 10 percent
royalty. If you are able to sell even ten million dollars of a
product, and obviously you d have to subtract your costs of sales
and stuff from that, maybe as much as four million dollars, you
achieve a contribution margin of six million dollars, whereas a
10 percent royalty on that would yield only one million. So over
the long run that ability to capture greater value for your
creativity in new drug development is going to be critical in
terms of long-term survival. It can t be done at once obviously,
but as soon as you can I always felt that you needed to do that.
Hughes: Was this established business dogma?
Swanson: No, this was not a common philosophy at all. In fact, the common
philosophy at the time was, it s impossible to build a
pharmaceutical company because look at how long it takes seven
to ten years to get a new drug approved, and the amount of money
it takes . No one could do that . So anybody starting a company
would just have to accept royalties. There are companies that
set up that policy. They said, "Okay, we re just going to do
development. We ll collect royalties and then do more
development." I think our approach was scoffed at a little bit.
It was said, "Well, what makes you guys think you can do this?
You know, it s very difficult." We just said, "We re going to
try. We re going to go for it, and hopefully we ll be
successful. "
In those days, the only model for a new pharmaceutical
company was Syntex, which was founded in the fifties. Basically
it was birth control pills that propelled them, but even then
they licensed J & J [Johnson & Johnson] and had little right to
sell themselves, so they leveraged themselves in the beginning.
That was then the most recent example of a new pharmaceutical
company that succeeded in getting to a significant size and
making and selling its own product.
80
Getting FDA Approval
Hughes: I read that because these proteins were natural molecules, the
FDA approval process might be faster than it was for the small-
molecule drugs. What indeed happened?
Swanson: Well, I think your assumption is correct in that if you re making
human growth hormone from a microorganism, it s still human
growth hormone and you know a lot of the properties. It s not a
mixture of chemicals from off the shelf where you have to worry a
lot about the toxicity. With growth hormone, there may be
toxicities related to the molecule --which are obvious: you get
too much, you get acromeglia--but at least they were well
understood, and also the dosing was understood. They had been
giving it to children; it just came from a different source.
Then you had the issues of how is it formulated and what are the
impurities? But those weren t primarily the issues. I think the
FDA in those days felt that we had some of the best science.
They compared us to Merck in terms of the quality of the science
that we came in with. But they thought we were incredibly naive
in terms of what it took to get a drug approved. They wanted
their reports in a specific way. It took us a while to
understand that it didn t matter whether that made the best
scientific sense. [laughter]
Hughes: That s what they want.
Swanson: If that s what they want, that s what they re going to get. And
delivered exactly as they want us to do it and in fact almost to
overdo them. It took us a while to understand that, and as a
result there were delays. I think it took us a year longer than
we thought to go through that process.
Hughes: Because Genentech hadn t supplied the right data?
Swanson: And the kinds of studies that were done. When you have academic
scientistswhom we had mostlythere are right approaches and
wrong approaches. We would say, "This is the correct scientific
way to approach it." Well, it wasn t a question of that. It
was, "This is what we [the FDA] want." And in some cases what
they wanted proved to be right because of their long experience,
and the human body is pretty complex. It did take us longer than
we thought. Eventually we got approval. Growth hormone was the
second drug approved, insulin being the first. But Eli Lilly
carried the ball with insulin, and then we did human growth
hormone .
Hughes: Did you think it necessary to hire people that had had experience
with the FDA? Or was it a matter of learning by doing?
81
Swanson: Well, no. One of my philosophies is, I try very hard to get the
best people in every area of expertise, whether it be marketing
or finance or manufacturing or FDA approval. The kind of people
that you re able to attract changes at different stages of a
company s development. At the early stage, you might find a
great person that is also a risk taker, who has a higher risk
profile than someone hired when the company is a little larger
and who is a little more methodical. So we had some people like
that, but obviously we didn t have enough. The person who was
heading the regulatory groupwho did an amazing job--was Mike
Ross. He s gone on--he was the number ten employee to start a
couple of other companies. He s president of a local company
now.
Hughes: What was his background?
Swanson: He was Dartmouth, Caltech Ph.D, and he was doing his postdoc at
Harvard when we hired him.
Hughes: And he was hired as a scientist?
Swanson: Scientist, yes, but he was in charge of a number of things. He
was given the task of coordinating the efforts for growth hormone
approval. We had people, as consultants initially, who would
help us figure out how to do it. Mike did an incredible job, but
we were naive in terms of what it took, and so we made some
mistakes.
Acquiring Diverse Expertise
Hughes: Comment, please, about acquiring expertise in many areas; the
areas are mentioned on the second page of Middleton s memo. 1
Swanson: Yes. [reading] "Genentech completed the hiring of its core
management and technical teams in Manufacturing, Finance,
Marketing, Organic and Biochemistry, with a total of thirty
employees." [laughter]
Hughes: By year end, which is 1978.
Swanson: Right. Late that summer we had succeeded in cloning and
expressing human insulin. So that was really the beginning of
the first product that got approved. We had already reached
Ibid.
82
arrangements with Lilly on that. We had signed an agreement with
Kabi for marketing of human growth hormone.
Hughes: Which would explain some of the increase in staff that happened
at this point.
Swanson: We had success, and I tried to organize things so that once you
had success and created value in the company, then you raised the
next round of money for the next success that would create
greater value, and added the people that allowed you to do it.
So it s sort of building a staircase with steps that you can
negotiate each stage, that involves an achievement of something
that creates value, raising money off of that to achieve the next
step in value and what additional money is needed, to the point
where your cash flow is positive from product sales.
The Recruitment Process
Hughes :
Swanson:
Hughes :
Swanson:
What did the recruitment process involve?
people?
How did you find good
Well, in each case it was different. We used head hunters quite
a bit to try and find the nonscientif ic types. The scientist
types generally were referred by other scientists because with
the publishing of papers and the small network people knew who
was good in a particular area.
The referring scientists were the ones already at Genentech?
Yes. The first scientists, as I mentioned, were Herb Heyneker
and Dave Goeddel and Dennis Kleid. Then from them and from Boyer
we were able to identify other expertise. We needed organic
chemistry to synthesize the DNA, and so we hired Roberto Crea--
who was working under Itakura at City of Hopeand he wanted to
be part of a commercial enterprise. We needed protein chemistry,
and they identified Mike Ross who was in a lab at Harvard doing
protein chemistry. We had to begin primarily with molecular
biologists, but we ultimately would have to learn how to purify
and handle and formulate these proteins. In manufacturing, we
used a headhunter to find a manufacturing leader, and Brian
Sheehan helped bring on board the first fermentation equipment
because we d have to grow bacterial clones on a larger scale. I
think we looked through a headhunter for a head of finance, but I
finally hired somebody I knew from MIT who had a lot of
experience with Chase Manhattan Bank and MacKenzie. That s Fred
Middleton. He became the first financial vice president. I
think we used a headhunter to find a marketing guy, as well. It
Hughes :
83
was very hard--in marketing, particularlybecause some people
had been used to working in a big company where you started in
sales and worked up in the organization that way; but it was very
compartmentalized. So until you got to the very top, you had no
experience with any other part of the process.
At Genentech there was great interaction between all the
pieces. We finally found our first marketing guy, Bob Byrnes,
who had worked for a small division of American Hospital Supply.
They actually had pharmaceutical products, whereas American
Hospital Supply usually supplies all other needs to hospitals in
more of a big distribution operation. They had this small
pharmaceutical division with sales of maybe less than a hundred
million dollars. But there was enough similarity that we could
find somebody who would identify with a smaller enterprise.
What was the incentive for people such as Middleton and Byrnes to
come to Genentech?
Swanson: Well, the excitement of building something new. Also, the
opportunity to be an owner. All the people at Genentech were
offered the opportunity to become shareholders, at different
levels. Obviously if you were part of the senior team, you were
offered a greater opportunity. There s an opportunity to build
significant wealth, along with building value in the company.
Hughes: Even in such a new company as Genentech, you think that was an
incentive?
Swans on : Oh , yes.
Hughes: People probably wouldn t have come if they didn t think there was
potential.
Swanson: Well, some of the scientists didn t believe that the stock would
have any value. They just wanted to be on the forefront of
science. Then, I d say, "Look, you want to be an owner and have
some stock, too." They d say, "What is this good for?" They
found out soon enough. After the public offering in 1980, a lot
of them said, "Oh, my goodness, look, I m now worth some real
money." So that was nice. But the business people understood
there was an opportunity to build an ownership position.
Hughes: You re saying that scientists came to Genentech to do science but
not so much to do science to make money. Why do scientists come
to industry nowadays?
Swanson: Well, it varies, depending on the scientist. There are some
people who are interested in making a quick dollar, if you could
put those terms around it. The scientists I was involved with
84
and the people at Genentech were interested in being able to do
better science at Genentech. We had the ability to synthesize
large quantities of DNA, and no one else did. So they could do
experiments at Genentech that they couldn t do any other place.
We had the state of the art in terms of some of the cloning
expertise. So there was an opportunity to do science better than
they could do in the academic world. They didn t have to do the
grant -writing process.
Creating Value in a Company
Swanson: The scientists were creating value in an organization, and we had
structured it in such a way that they got to share in the value
that they helped create. They got paid a salary for going to
work every day, but if they created more value in the company,
then they had a piece of that value. I think that s still the
right way to think about it. There s a discussion now, "Okay,
I ve got this idea. I ll get a few scientists together, and I ll
hire people, and I ll crank it up, and I ll raise more money, and
I ll get the public offering. Well, look at how much money I m
worth." It s putting the cart before the horse. If you create
value in the organization by discovering a new drug, building an
outstanding team of people, getting the product to the market-
whatever it is that creates more value- -then eventually that
value gets reflected in the price of the shares of the company.
The market goes up and down. You re building value all the time.
Maybe the market doesn t reflect it one year but eventually it
does. Maybe it over-reflects it, but as long as you focus on
building the value of the company eventually that gets reflected
in the stock price. That s the way I ve always talked to people
about it , and I think it s the right way to think about it .
Hughes: I was struck, when I first came from the university to Genentech
to see the very tangible presence of corporate value through the
monitors which seemed to be in just about every unit, showing
what the stock is doing.
Swanson: I may have a somewhat naive approach to this, but I think most
people don t do things for money. If they do it just for money,
rather than the love of it and the desire to do something, then
they re probably not as good at whatever it is. I think people
by and large do things for other reasons.
85
The 1979 Corporate Plan
Hughes: I d like you to take a look at the 1979 corporate plan,
interruption]
[tape
Swanson: We re looking at the 1979 corporate plan which reviews the
corporate milestones. What it reflects is exactly what we ve
been talking about: Boyer and I coming together in 76; we
raised a hundred thousand dollars; we negotiated the agreements
with the universities; we got the first somatostatin project
started in February of 77; and then we raised money to fund that
project. But it was money raised based on the fact that we had
all these agreements and were ready to start. We succeeded in
making the first successful human hormone [somatostatin] in
August of 77. We then started on insulin, and we moved to our
own facilities at 460 Point San Bruno to do that. With the
success of somatostatin, we raised the third round of money. So
each success drove up financing through the next step.
In August of 78, we had human insulin, and we had signed
contracts with Lilly to make and sell it. We d signed contracts
with Kabi for growth hormone, and we began working on producing
human growth hormone . We had also begun working on human
interferon, and eventually that would lead to agreement with
Roche to sell that product. We expanded the facilities in
December of 78, and Seeburg and Ullrich came about this time
because those facilities were built for them.
Scaling Up the Technology: Fermentation, Purification, and
Formulation ##
Swanson: We were doing the early scale-up of some of the fermentation
processes in 79 and learning how to make these products in bulk.
Hughes: Did manufacturing in bulk present surprises?
Swanson: Yes, it did. You asked about hiring. Actually, the first two
people I hired were also among the first that we had to let go.
One was my first secretary who became an office manager in a
sense and did everything. But she was so autocratic, the
scientists would actually wind up coming in the back door to
avoid her yelling at them. Of course that couldn t happen, so we
Genentech, Inc., 1979, Corporate Plan,
files, Genentech.) See Appendix C.
(Chief Financial Officer
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
86
had to let her go. The first manufacturing guy turned out to be
a very good guy and did a lot of other things to help the
company, but he couldn t work very well outside of a big
organization and really wasn t who we needed to do the
manufacturing. So, yes, it was more difficult than we thought.
It was never something that got to be so difficult that it caused
problems, but there was a lot of energy put into scaling up the
technology.
Even today one of Genentech s key strengths lies in how you
scale up and manufacture these protein molecules on a large scale
with different organisms. The fermentation part of it is
important in terms of how to get the yields up, how to get the
microorganism or in some cases mammalian tissue cells to produce
large quantities of product. That has to be coordinated. And
what everybody didn t think about much was the purification part.
Everybody talked fermentation, but the purification was as
critical and as difficult because you had to separate these small
quantities of protein from all the junk. If you fermented things
differently, there was different junk in there. So both of those
processes had to be coordinated. If you changed the fermentation
process, all of a sudden the purification process didn t work the
way it worked the last time. In fact, we made the decision in
the early days to put process developmentboth fermentation and
purif ication--in the manufacturing building so there would be
close ties between those pieces in terms of the scaling up of the
process.
You mentioned a protein chemist. Was it he that initially was
saddled with the problem of purification?
Yes, that was part of it, not only the purification but. how do
you formulate these proteins so they can be put into people?
And activate them, right? Somatostatin had to be clipped in a
specific way to activate it, which I suppose was not evident at
first?
Yes, just figuring out how to do that. Then different components
of insulin were made in different organisms and then combined.
You had the A and B chains that had to be purified separately and
then combined. For that, we helped Eli Lilly, but then
eventually the baton was passed, and they did a lot of the scale-
up on the insulin. With growth hormone we had to do it all
ourselves.
In the case of Eli Lilly, did their long experience with
fermentation help? They d been in the insulin business for
decades. But were the problems with recombinant insulin so
different that they had to acquire new expertise?
87
Swanson: For a long time our science was leading. We laid out the basic
processes for them, and then they refined them and scaled them
up. It probably was the right combination for those early days
because we couldn t have done it alone, and they couldn t have.
As I look at this list of things that we were working on
here, we re beginning to do some marketing research on our
different products. We were now working on the scale-up of
insulin. We d started work on thymosin, which never turned out
to be a product. In 1979, we actually succeeded in producing
human growth hormone. So that was the next product. These
products came in series rather than parallel.
Introducing the Project Team System
Swanson: One of the difficult management changes came right after
interferon, which was done right at the end of 79. Then we
started saying, "Okay, we ve gotten big enough. How do we do
multiple things at once?" Then we had to develop a system of
project teams, because now we were not putting the entire
company s energy on one thing but rather doing a couple of
things .
Hughes: Before that, certain scientists would be doing insulin and others
would be doing growth hormone?
Swanson: Yes, the laboratories were. But even then the DNA synthesis
group was making DNA for everybody. The protein group was
helping people purify different things. So there was this
integration of the different functions. It wasn t what people
were used to before that, which was one lab does everything.
There were really a lot of collaborations within a project.
A hundred percent of the company worked on human insulin. A
hundred percent, just about, worked on human growth hormone.
Then we did, in 79 I guess it was, interferon and animal growth
hormone and hepatitis B. So all of a sudden we were starting to
do more than one product at a time, and we needed to figure out
how to create project teams. For example, there were only so
many people in protein chemistry and four or five projects all
of them wanting all the people in protein chemistry. How were
they to decide what to work on, and how did you coordinate all
that? It was a learning process; probably it happened in 1980,
more than a 79 time frame.
88
Hughes: You couldn t extrapolate from how the drug companies operated? I
presume they also work in a compartmental fashion. You couldn t
just lift that system and apply it to Genentech?
Swanson: No. It was big and bureaucratic and you didn t want to lift it.
Facilitating Corporate Communication
Swanson: I remember one of the comments at the time from somebody at
Syntex--which was one of the newer pharmaceutical companieswas
that occasionally the different groups which were on this big
campus down there would send each other correspondence by the
U.S. mail because intracompany mail took longer. They were in
separate buildings, far apart. I always was very sensitive to
the studies that were done about how close scientists had to be
to each other to communicate. Once you get beyond- -it s either
seventy feet or seventy yards --communication drops in half or a
quarter. People will walk one set of stairs but not two. So you
start thinking about buildings either one or two or at most three
stories tall, and how do you create spaces for people to gather
and interact and talk, because that s where you get the great
thinking that comes from that interaction.
Hughes: That was a concept that you applied when you were designing
buildings?
Swanson: Our facilities, yes. We tried to think about that.
Selecting and Terminating Projects
Swanson: The other thing I see we had going there [scans corporate plan]
was a vaccine for hepatitis B, which we re still getting
royalties on. We were really among the first to develop that.
And animal growth hormone, which we said we couldn t do ourselves
because it would have been an enormous scale-up project. We
finally licensed that to Monsanto.
Hughes: How did you choose these projects?
Swanson: I m not going to give you a very coherent answer because it
relied on what [molecular] structures were known. At that point,
there weren t a lot of the structures known for the different
proteins. So that was part of it. Where we thought there could
be a good market. Where we thought it was technically feasible.
89
We had a whole set of criteriaspeed of FDA approval; need,
nothing available. In each case it was a little different.
At that time, everybody thought that interferon might be a
magic bullet against cancer. Then, as you got into it, you found
there are three or so broad classes of interferon. So there was
a great discovery in the biology that went along with this. The
molecular biologists said, "Oh, we can clone this." Well, what
does it do therapeutically? In fact, today, that s really the
heart of all the work that s going on. We ve got the genomic
work, and we re ironing out sequencing the human genome, and
we re pulling out genes. But the real heart is how do they
interact in the body? How do they get turned on and off? And
what kind of effect do they have? Out of that will come the next
generation of drugs.
Hughes: Do you think you went into it a little naively? There were
criteria for starting these projects, but no real idea of what
you were going to find once you really got into them.
Swanson: Yes, the body is incredibly complex. Even with the knowledge
that we have today, it s not always clear. You start something,
and you find out it doesn t work the way you thought it did. So,
yes, I think we were naive. Interferon is an interesting example
because there were new applications found for it, and today
between Roche and Schering Plough I think they sell over a
billion dollars worth of interferon a year. It started out with
Kaposi s sarcoma, 1 and then some other applications, and it
expanded from that. Eventually interferon turned out to be
useful, although not as originally intended.
Hughes: Would you like to comment on thymosin as an example af a
potential product that didn t pan out?
Swanson: There we had worked with a well-known professor [Allan Goldstein]
on the East Coast [George Washington University] who had been
working in this area for a long time and felt this was an immune
stimulation agent that could have broad applications, but it just
didn t work that way. In retrospect, maybe we didn t apply as
stringent criteria as we could have in deciding to do thymosin
versus other products because we thought, well, it s easy; let s
just clone it, right? And then we ll find out. But in fact it
didn t work out.
Hughes: You make it sound clear cut. I suspect in actuality it wasn t
quite so clear cut. One could say, for example, all we need to
do is a bit more research and maybe we can make thymosin work.
Thomas Kiley believes it was hairy-cell leukemia.
90
How do you come to the decision to cut off a project when a lot
of time and money has been invested?
Swanson: That s one of the most difficult things to do. One of the
reasons companies succeed or fail is which projects get cut and
which ones don t. Even in the case of tissue plasminogen
activator to treat heart attacks, other people had looked at this
and didn t see it as something that could be used in the way we
did it. So it s a judgement call, and that s where you need the
very top scientists and medical doctors and everybody to make
that callwhen to stop it, when is enough, and when to go the
next round.
A "Loose-Tight" Organization
Hughes: In a situation such as that, would you have put a lot of priority
on scientific advice?
Swanson: Oh, yes.
Hughes: I m trying to make it too clear-cut, I m sure, but the science
drives the business, doesn t it?
Swanson: The science drove the business from the very beginning. People
talk abouta "loose-tight organization." What they mean is, at
an individual level of the scientist and the technician, you want
a lot of flexibility for them to do the projects that they re
working on and to follow their nose. But as the effort gets
greater, all of a sudden it s not just a couple of people in the
lab; it s people from other groups working together, and there s
more money involved. Then the criteria need to get tighter and
tighter as the number of people involved and the money you re
spending increases. You need to make sure, "Okay, are we
thinking about this correctly? Have we analyzed it? What
success do we need before we make the next investment?" So where
you have a lot of flexibility at the small end, as a project gets
further along, you have to become more rigid in terms of making
sure you ve hit the milestones before you make another
investment.
Swanson Keeping in Touch
Hughes: You describe an organization that within three years of formation
is already getting fairly complex. How did you keep track?
91
Swanson: I walked around a lot. I d be walking through the labs and
talking to people, and I think they really appreciated it. I did
it because I was interested. They knew that I loved the science
and thought, "Oh wow! I got this great result. I d better go
tell Bob," because I was as excited as they were about it. In
the early days, you could do that. But as organizations grow,
you can t do it as much so you have to figure out other ways of
doing things.
Hughes: What sorts of ways did you use?
Swanson: Well, you have team meetings. You have to do it, but the other
way is better.
[Swanson again scans 1979 Corporate Plan] I ve just been
looking at who we had on board here.
Hughes: That s an interesting document, isn t it? It lays out what
Genentech was doing and who was there.
Swanson: So Ullrich hadn t come yet. Seeburg was here and Giuseppe
Miozzari.
Hughes: Who is he?
Swanson: He was a Swiss fellow, and he only stayed two years, so it must
have been 79 and 80. His wife wanted to go back to
Switzerland. So he s been working for Sandoz for a while. 1 He
was an early molecular biologist.
Clear Corporate Goals
Swanson: Here we had clear goals in each of these areas, as you look
through the corporate plan. We said we wanted to have hepatitis
surface antigen expressed by January 1980. We wanted to have
interferon monoclonal antibodies by November of 79. What we
tried to do as a company was to say, "Okay, what are the most
important things to get done, and who s going to be in charge of
them?" And to lay those out. We had to figure out a way to put
the insulin A chain and B chain together by June 25th of 1979.
[laughs] We d try to make the goals realistic, and scientists
always added extra time because they would give us their best
estimate. Things would always slip a little bit, and we d try to
Miozzari went to Ciba Geigy, which later merged with Sandoz to form
Novartis. (TDK)
Hughes :
92
make this realistic, but you had to deliver on this. [reading
from corporate plan] "To develop a procedure for purifying the
following proteins from E. coll cell paste." 1 So there it was;
there was a list of goals and a group of people working on how to
get that protein out of the dead E. coli cells after they d been
fermented.
This must have been very difficult to figure out when you were
breaking new ground in many of these areas .
Swanson: Yes, this was not anything that had been done before. Then we
had a bunch of potential products that we were looking at.
[reading from corporate plan:] "In order to obtain a better
understanding of organization and function of eukaryotic genes
and to isolate DNA sequences coding for valuable proteins, the
following project is initiated..." 2 We had looked at beta
endorphin and nerve growth hormone and secretin and IGF [insulin-
like growth factor] 1 and 2, and a number of other things that we
were just beginning to look at to say, okay, could these be
interesting products? Actually, IGF 1, which is first talked
about here in 79 as an interesting research product, is now in
tests by Genentech for treatment, with growth hormone, of
peripheral neuropathies.
Hughes: But it was not pursued further in 1979?
Swanson: There was only so much we could do. The same thing is going to
be the issue today: what are all these genes and everything
people discover good for? How can you make a drug out of them?
The knowledge is expanding, but that last step, how could this be
useful, is really the key. Sometimes it takes a long time. Look
at those two, IGF 1 and nerve growth hormone. It just took a
long time to figure out how to use them and to what disease they
might be applicable.
The Need for Basic Biological Understanding
Hughes: In attempting to develop biological factors as commercial
products, companies sometimes ran up against a lack of knowledge
of immunology. Even today, there is that problem.
The proteins listed are insulin, somatostatin, human growth hormone,
and alpha- thymosin. (Genentech, Inc., 1979 Corporate Plan, Chief Financial
Officer files, Genentech.)
2 Ibid.
93
Swanson: Yes, and there was much less knowledge then. So I think this is
still going to be where the rubber meets the road.
Hughes: In those early days was there a euphoria because of the
technology? "Look, we ve cloned all these genes. We have the
golden key now. The products are going to flow." It was not
that simple.
Swanson: It wasn t, no. And today you look at all the genomics companies.
Several have funding of sixty, seventy million dollars over five
years from giant pharmaceutical companies to find genes in the
area of obesity. I think good work and great science will be
done, but there s a lot of work from finding the first genes to
understanding how you can make a drug to make those fat cells
shrink. [laughter] Whatever the goal is. The technology itself
creates euphoria because you ve now got the tools to really
analyze these things. But the body is a complex system with lots
of interactions, and how you can affect one thing without
affecting a bunch of otherswhich is what side effects are all
about is why it s so difficult.
Hughes: Did you, in those early days, appreciate that high technology
wasn t enough in itself, that you had to have the science?
Swanson: Yes. Initially, I didn t work on things when I didn t know how
they worked. Insulin I knew; growth hormone I knew. I took my
first risk with interferon, where we didn t know how that worked.
People had been working with tiny quantities of it, and they had
all these different results --some exciting and some not. But
that was a real risk.
More on Choosing Projects
Swanson: [referring to corporate plan] Some of this next group of
biological factors that has taken a long time to figure out were
more risky than the first. We chose to develop the others first
because at this early stage we couldn t afford to take any of
those risks. If we succeeded in making these products, we had to
know that they would work in humans . We were pretty sure that
human insulin would work just as well or better than pig insulin.
Growth hormone had been given for many years , but it had been
extracted from cadavers. And now that we were making it in E.
coli, it should work the same way.
Hughes: Being the first successful biotech company, did Genentech have an
advantage in being able to skim the cream? To take the obvious
projects and drive them to a product? Or was there so much out
94
there to develop that other early companies didn t have to worry
that Genentech had taken the easy projects?
Swanson: Well, I think I was kind of unique in thinking about growth
hormone being easy. Because when other people talked about this
technology, insulin was always mentioned, but there wasn t a lot
of excitement about growth hormone . It was then kind of a tiny
market.
*i
Swanson: While in retrospect they look like, "Well, you picked the easy
ones," I m not sure the idea of going for them was an obvious
decision. In retrospect, you obviously go for the ones that have
an existing market. But people weren t thinking like that. The
scientists and other business people were talking about going for
products where there wasn t an existing market. In theory, you
could cure cancer, or you could do this or that, and if you could
that would be great. But it was certainly more risky because you
didn t understand the biology the same way that you understood
the potential market. So what seems like an obvious decision
today, wasn t as obvious to everybody at that time.
The other thing I guess you re asking is, did we have an
advantage? I think we did because we were early enough, we had
built up a strong team, and some of the other people that came
after us wouldn t work on things that we were working on because
they were afraid to compete with us.
Goal to Remain an Independent Company
Hughes: You were reported in the Examiner in 1980 as stating that
Genentech s corporate mission was to remain under the control of
its management. 1 Was there some threat at that point? Why did
you make that comment?
Swanson: I don t remember that comment. The mission, as I look at it
here, states: "Genentech is a privately financed high technology
corporation owned by management and venture capital investors.
Its purpose is to commercialize and bring to the public the
benefits of new molecular biological technology." 2 In other
Mike Johnson, "Behind Genentech s Decision To Go Public," San
Francisco Examiner, August 20, 1980.
2 Genentech, Inc., 1979 Corporate Plan. (Chief Financial Officer
files, Genentech).
Hughes :
Swans on:
95
words, what we re saying is that this is an independent company.
You have investors and you have management, and we re running it;
we re in control of it. This evolved to another mission
statement, which was to build a major independent pharmaceutical
company. Well, that changed with Roche s involvement in 1990.
But up until that time, that we d stay independent continued to
be the goal.
There were never reasons before the Roche acquisition to question
that?
No. The idea was we weren t building up something to sell to
somebody else. We weren t in the business of just collecting
royalties and doing research.
Early Strategy to Cover Operating Expenses
Hughes: According to the 1981 annual report, Genentech s early strategy
was to cover operating expenses with contract revenues and
interest income. Do you want to comment?
Swanson: Yes. It was a very important part of our strategy. We had to
build up an infrastructure that would allow us to work on these
different projects, but since there was a long time between when
you first cloned a gene and when it became a product that was
being sold and generating revenues, you had to figure out how to
feed all the people that were working there. I was very
concerned about two things . One was running out of money at an
inopportune time, because sometimes it s easy to raise money and
sometimes it s hard, and it s totally independent of when you
need it. Second, I was concerned because I d seen as a venture
capitalist some companies in the development stage develop this
psychology that, "Well, it s okay to lose money. Next year we re
going to turn around." It was not a good way. So I said to the
scientists, "Look, a company has to make money."
I don t know if you saw that little brochure, "The Genentech
Corporate Philosophy." There are seven points. The first one is
profitable growth. It was the base, the essence of it. I would
take new employees, many of them coming out of the academic
world, through this philosophy. I would say, "Why do we have to
be profitable? It s a measure of the health of a company because
it says, How well do I understand what my customers needs are?
Can I make a product that they want to buy? And will they pay me
more for that product than it costs me to make it? And if I can
understand their needs well and make a product for less than
they re willing to pay for it, I get to keep the difference."
96
There s overhead and other things, but I said, "This is the
essence of a company." The better you understand customers
needs, the cheaper you can make the product, the more value the
product has that they re willing to buy. Then you make more
money, and the more money you make, the more it says, "I m doing
things right. I m a healthy company."
So that was an important part, and I would introduce the
scientists to that concept, many of whom had grown up thinking
profits somehow were evil. So the first thing was that it was
important not to lose money, and second, that it was important
from the psychological standpoint of the people working at the
company. If we were to break even during these development years
when we needed to expand to put in a new plant or new
laboratories, if the timing was right we could raise the money to
do that, and we wouldn t be at the mercy of the venture
capitalists or the markets and get caught without funding. It
was trying to manage it conservatively.
Licensing and Selling Product Rights
Hughes: Well, I read that as early as 79 you squeezed out a paper
profit.
Swanson: Oh?
Hughes : Yes .
Swanson: Well, it wasn t very much; it was maybe a penny per share or
something. But the whole idea was that we would try and break
even during this time. Actually, it was very, very helpful
because it focused our energies on, "Okay, what are we going to
work on that we can get to be a product? And then, how do we
structure the business so that we can get other companies to help
us fund this development?"
We eventually evolved to a strategy which we jokingly
called, "Let s sell something three times." We would try and
license rights to a product to Japan, where we knew we couldn t
sell ourselves for a long time. We d try and license rights to
Europe, where we thought we wouldn t be able to sell for a long
time. And we d keep the rights in the United States for the
product and try and do an R&D partnership to fund the
development. This is where investors would actually buy it, own
it, fund the development of it, with the right of the company to
97
buy it back and pay them a royalty. 1 So they got the tax
benefits. 2 If it didn t work they lost their money, but if it
did work, they could get a substantial return. In all, the
investors made money in those partnerships. 3 In fact, one of the
things I m proudest of is that every time the company went out to
raise money, the investors made money. You couldn t control the
trading of the stock- -people buying and selling. But when we
went out to raise money, whether it was selling stock or selling
bonds, everybody has made money when they bought directly from
the company. That is something I m pretty proud of.
Hughes: George Rathmann commented that Genentech raised tens of millions
of dollars selling certain product rights in Japan and Europe. I
don t know what period he was referring to.
Swanson: I don t know exactly, but that was the whole strategy. Eighty-
five percent of the total world pharmaceutical market is Japan,
U. S., and Europe. It s divided a third, a third, a third--a
little less in Japan, a little more in Europe, but roughly that
way. So we thought about it, and we said, "Okay, we can only do
so many transactions because it takes an incredible amount of
energy to do a licensing deal. So if we think of things in
thirds, we can capture 80 percent of the value. We re not going
to be able to market in Japan for a while, so we re really not
giving up very much. Europe would be easier, but let s try and
keep the U.S. rights. So we then used these different financing
vehicles to try and cover our expenses while we were building the
companywhile we were pushing these products to the market.
Hughes: You couldn t market in Japan because of drug approval problems?
Swanson: Well, you d want to market in the United States yourself, because
you understand it; and Japan generally took longer to get
approval. They weren t so concerned about whether a drug worked,
but they were crazy about safety. So they d do years and years
of safety study and very little looking at whether it was
effective or not. But it was a different culture; you d have to
set up a whole different approval process; drugs generally got
approved later; it was dominated by Japanese firms. So that s
not the first place you d want to go.
Hughes: I saw a reference to a meeting in 1979 in which you participated.
Nelson Schneider, a pharmaceuticals analyst at E. F. Button, held
a conference with you, Peter Farley of Cetus, Phillip Sharp of
Or in the earliest R&D partnerships, the choice of royalty or stock
valued at a multiple of their investment. (TDK)
2 R&D credit. (TDK)
3 Almost all the partnerships were successful. (TDK)
98
Biogen, Leslie Click of Genex, and Zolt Harsanyi, a researcher
doing a report on genetic engineering for the Office of
Technology Assessment. Do you remember that meeting?
Swanson: I remember. When you say the names, they all come rushing back;
but I don t remember the content. But they were the players.
Hughes: I guess Amgen had not yet been founded.
Swanson: Well, maybe it was being formed. I don t remember exactly when
it got started.
Early Political and Financial Issues
Hughes :
Swanson:
Hughes :
Swanson:
Hughes :
Swanson:
Legislation to regulate recombinant DNA research, which actually
never came to be, was being argued at the federal and state
levels in 1978-1979.
Boyer and I went back to Washington; we set up meetings with
different congressmen. I remember seeing Senator [Edward]
Kennedy and others, trying to convince them that the U. S. should
use the guidelines rather than legislate. In the end we were
successful in doing that, but it was touch and go. So there was
a lot of interest in whether recombinant DNA research needed to
be regulated in terms of its safety. The other side--to balance
it off --was the vast potential to do good. The Congressional
Office of Technology Assessment and others were looking at, okay,
what are all the benefits that could come out of this technology
so that you can make a good decision about it? 1
And that s one reason that Philip Handler s announcement in a
Senate subcommittee of the cloning of somatostatin was a big
deal. Here was evidence that biotechnology was a promising
industry of potential value to the American economy.
Yes.
Which was a theoretical argument at that point,
would argue it s still theoretical. [laughter]
I guess people
Well, no, I don t think they can. You look at last year: the
products that came out of Genentech s laboratoriesthey were
See, "Impacts of Applied Genetics: Micro-organisms, Plants, and
Animals," Office of Technology Assessment, Congress of the United States,
Washington, D.C., 1981.
99
created there but not all of them sold by Genentech- -total annual
sales were over three billion dollars. That s products that
people are buying and using. That s pretty incredible. Still,
people always say it should be happening faster, and you d like
it to but it s tough.
Hughes: Did you have a concept, as you were beginning all this, of the
time lag between the scientific idea and an actual product?
Swanson: We did estimates. We always picked times that turned out to be a
little shorter than the time things actually took to get done.
But, yes, clearly, we understood at the very beginning, and that
was part of this financing strategy, that we can t predict how
long it s going to take so we have to cover our expenses as we go
along; we have to have a way of doing that because it may take
longer than we think, and we can t put the survival of the
company in jeopardy.
Initial Public Offering, October 14. 1980
Hughes: Would you like to talk about the IPO?
Swanson: Sure. We decided to raise money in our initial public offering
in 1980. We did it for a number of reasons. One is that we
needed more money to complete our development . There was a lot
of excitement about the technology, and we wanted to be the first
company out to the public market because we felt that we were
doing things right. We were basically managing the business
conservatively; we were focused on getting to market; and we
wanted to set the right tone- -the idea being, if a bunch of other
biotechnology companies were out there, and they disappointed
investors or they weren t doing things right, then it would be
more difficult for us. So we wanted to set the standard. We had
been setting the standard on the science. We wanted to set the
standard as a public company.
Hughes: Were some of your competitors, mainly Amgen and Biogen, thinking
along these lines?
Swanson: No. There was "the Big Four." It was Genentech and Cetus ;
Biogen was just started, and there was a Genetic-something in the
Washington, D.C., area. 1 They were focused on industrial
products. We felt that we needed to set the standard, and so we
made a decision to take the company public. The most interesting
It was Genex Corporation. (TDK)
100
fact is that raising thirty-five million dollars was the largest
initial public offering ever done to that point.
Hughes: Across the board?
Swanson: Anywhere. Now they re doing billions of dollars, but at that
time it was the largest IPO ever.
Hughes: Why would that be?
Swanson: Everything was done in smaller amounts. At that point the
Kleiner & Perkins venture capital fund was eight million dollars.
Today it s three hundred million.
Hughes: What I meant was, why did Genentech capture the imagination of
the investment world?
Swanson: Well, it did that because it went from thirty-five dollars per
share to eighty-nine the first day. I think people saw these new
tools [recombinant DNA technology] for what they were. It was
ability for the first time to have the tools to understand the
human body and begin making drugs to cure diseases. It was a
kind of technology that can capture people s imaginations. You
had people say, "Well, we ll put this stock in the drawer for our
grandkids. This is something for the future." So a lot of
excitement happened in those days.
The Economic and Political Environment
Hughes: I m wondering if the larger economic environment didn t play a
role as well. In 1980 the Supreme Court made a decision in
Diamond v. Chakrabarty that living organisms are potentially
patentable. In that same year the Bayh-Dole Act gave
universities the right to patent federally funded research. I m
surmising that the economic climate must have been conducive to
the IPO. Do you want to comment on the larger context of the
IPO?
Swanson: I don t remember what the economy was doing at that time.
Hughes: It wasn t a factor in your thinking?
Swanson: No. The factor was, is the market doing well enough and
interested in this sort of thing? Because sometimes the stock
market is interested in new technology, and other times they re
running for cover and buying bonds. So it had to be an
environment where, independent of what the economy was doing, the
101
market was ready for a risky, small company and people wanted to
invest in the theory that maybe we d do well and they d do well.
Hughes: I m assuming that there was a road show connected to the IPO?
Swanson: Right.
Hughes: Can you tell me about that and who participated?
Swanson: Oh, it was great. There turned out to be so much excitement
about this that people were publishing articles in the newspaper.
We really had nothing to do with it, but the SEC [Securities
Exchange Commission] was concerned that there was too much
publicity. So they wound up delaying the public offering to let
things cool down. Well, it turned out that I was about to get
married. The plan was to have the road show and the public
offering done and then to get married. We actually had a small
ceremony in Florida because my grandmother was 92 and couldn t
travel. But with the delay, the road show and everything came
after the wedding, and we couldn t change the time we got
married.
So my wife, Judy, and I got married in Florida on September
2nd of 1980, a Thursday, I think. We had a weekend together in
Paris, and then we were joined by seven men for the road show
through Europe, [laughter] It was Snow White and the seven
dwarves going through Europe. We did two cities a day. From
Tuesday through Friday we did Paris, Geneva, Zurich, Edinburgh,
Glasgow, London. We d arrive and we d tell my wife, "We ll be
back in two hours and we ll go to the next place. Have fun
looking around." Of course, we were always late. She was very
understanding. That weekend there was the old Leeds Castle just
south of London, which was dedicated by the Whitney family for
medical conferences and things like that. So we were able to
stay in the castle that weekend, along with the rest of this
contingent.
I left my poor wife on her own at Heathrow [Airport, London]
with a rented car and said, "Drive into the countryside. You re
going to love the Lake District. I ll be back in a week."
[laughter] So she drove through the countryside. People asked,
"What s a nice American girl like you doing alone?" She said,
"Well, I m on my honeymoon." Of course, that drove them
completely crazy. Then the next week I did the U.S., which was
Boston, New York, Minneapolis, Chicago, L.A. , San Francisco.
Then I flew back home, and Judy says I slept for three days. But
then we had the remaining three weeks to have our honeymoon and
come back and work.
102
Hughes: How did you choose locations for presentations?
Swanson: There are institutions, both in the U.S. and in Europe, that
invest in new public stocks. So what you have to do is go around
and tell them your story, explain to them why they should invest
in you. A day would be a breakfast meeting and maybe a couple of
one-on-ones. Say, you d go in and see institution one and make a
presentation to them, and then you d leave and go to another one
and make a presentation. Then you d make a big luncheon
presentation to lots of people who were interested and maybe a
couple more in the afternoon and at dinner. This is a grueling,
grueling time. You just come back like a wet dishrag. Even
though there was a lot of enthusiasm, this was a tiny company and
the biggest public offering, and we didn t know that we could
sell it.
Explaining Recombinant DNA Science
Hughes: It also involved a science that most people wouldn t be familiar
with.
Swanson: We had little beads, like baby beads, to make plasmids from. So
we made a circle and we d pop it open and pop the gene in and pop
it closed. Actually, we stuffed it into a box that represented
E. coli, [laughter] trying to get people to conceptualize what it
was that we were doing.
Hughes: Who was along on these tours?
Swanson: Well, Herb Boyer and myself; Tom Perkins, who was a chairman of
the board at that time; a venture capital investor, Bill
Hambrecht of Hambrecht & Quist; Pat McBane, who was in charge of
corporate finance at Hambrecht and Quist, and Bud Coyle of Paine
Webber--
II
Swanson: --were hopping around all over the place! [laughter]
Hughes: These people were leaders of the venture capital world?
Swanson: Well, these were not venture capitalists per se but institutional
investors. So they would be managing pension money; they would
be managing insurance funds, and so on. Actually, some of them
had a long tradition. You go to Edinburgh; they have a Scottish
Trust, which has this tradition of investing in new technology.
They were able to help build the railroads in the United States
103
because they could get 5 percent by lending to the railroads, and
only three percent in Europe at the time. They helped finance
the development of railroads when they were a new technology. So
you always make a stop in Edinburgh to visit the Scottish Trust
because, as they say, "We re not near any financial markets, so
we don t get caught up in the day-to-day, but we can say, Ah,
this is an important trend. This is a good company over the long
trend. "
Hughes: What was your reception?
Swanson: I think it was enthusiastic.
Hughes :
Swanson:
Does the media come into this?
were doing the road tour?
Were stories appearing as you
Well, no. Once you register with the SEC, there are very strict
controls over your ability to promote the stock. So we hadn t
gone out and talked to any media, but they just picked up the
stories. We were very careful we didn t do any of that, but they
got wind of it and started writing. So that was what caused the
delay in the offer.
Valuation
Hughes: How was the initial share price of thirty-five dollars
established?
Swanson: It was basically a negotiation between me and the underwriters,
between the company and the underwriters .
Hughes : How could you value a company such as Genentech which had no
comparison and no products?
Swanson: Well, I guess the last private round of financing had been done
by Lubrizol at about a sixty-six million dollar valuation. The
public offering was done at about a two hundred seventy million,
two hundred fifty- six- -I don t know- -million dollar market
valuation. 1 The bottom line answer is: market forces, more than
anything else. Obviously the people are investing in the hope
that the company will go up. In the long run, it s can this
company earn sufficient revenues to make the value of it go up
from when I bought it? Then there are the traders, right, who
think, "Well, this is a hot stock, so I ll buy now, and when it
Valuation was approximately $233,000,000. (TDK)
104
goes up I ll sell." People made a lot of money. They bought it
at thirty- five and sold it the same day.
Hughes: What did your scientists say about Genentech becoming a public
company?
Swanson: I remember one article that sort of says it all. Richard
Scheller was a postdoc in Itakura s lab at Caltech. He s now a
professor at Stanford. 1 There was a big article about him in the
Los Angeles Times around the time of the public offering. I gave
him, early on, fifteen hundred shares or something, which later
split and split and split. He was now, at the public offering,
worth a million dollars. So all of the sudden this became the
story, how a postdoc became a millionaire. [laughter] So some
of the scientists were saying: "Well, my goodness, this stock is
worth real money now." And half of them didn t believe it right
away. It took a while to sink in, but it didn t change people s
behavior very much. It was just, "What s next?"
Hughes: What about being a target of market forces? You have
shareholders; you ve got to keep the share price up; you ve got
to get products outnot that you didn t beforebut now there s
a level of scrutiny that didn t exist before the IPO.
Swanson: You can see the price reflected every day. The value could go up
or down before, but you didn t have to look at it every day.
[laughter] So that s the biggest difference. And you had to be
careful that you told everybody the same message because you
couldn t have people having insider information. So when you
announced things, you had to be thoughtful about, was this an
important announcement to make? Sometimes the lawyers would say,
"You have to make it," and you didn t want to make it. You had
to because you wanted to-- 2 We tied that to scientists desire
to publish, which we continued to do on a regular basis all
through this, which made it a little bit easier. Because as soon
as we had the patents filed, as soon as we had the manuscript,
usually it was published. We made the lawyers file the patents
when the papers were being written so that they were the ones who
made sure the patent applications got done. So we continued to
In March 2001, Dr. Scheller became Genentech s Senior Vice President
of Research. ROHO interviews are in progress with Dr. Scheller.
2 It s not clear what Bob intended here, but he s probably making the
point a public company must be consistent in its announcements. If it
announces good news concerning a particular subject it may have made that
subject material, though it might not otherwise have been regarded so. If
the subject has been made material, the company may be obliged later to
announce any bad news concerning it. (TDK)
105
publish, but then there were public announcements that had to
come out of that.
The world was a little different then, although it wasn t a
big difference. It wasn t until years later in the late eighties
with some dramatic drop in the stock price that you had the issue
of people thinking, "Well, gee, I had a lot more money than I do
now.
Ml
Hughes: Do you think the scientists felt more pressure once Genentech
became a publicly held company?
Swanson: I don t think so. I didn t see that as having a big impact. It
would be interesting if you talked to them. Maybe they have a
different viewpoint.
Benchmark Payments
Swanson: The thing that made the biggest difference in those early days
was that in each of these agreements we set up with these
licenses in Japan and Europe we had big benchmark payments. We
said, "Look, maybe we haven t even cloned this product. Or maybe
we ve just cloned it, and we haven t scaled it up. But we think
it s really valuable. We need some money now, but you shouldn t
have to pay it all until we ve taken out some of the risk. As
the product gets closer to the marketplace and becomes more real
and less risky, then it s worth a lot of money and you [must] pay
us as you go." So there were benchmarks in terms of agreements
that we signed, say with a Japanese company, that would be so
much money on signing, maybe a million or two dollars to show
their commitment to the project. Then when we had cloned the
product, maybe there was another two or three million. Then
maybe when we had scaled it up and were able to produce ten grams
of material, there was another two. When we had got it into
clinical trials, maybe another payment. The total could be
fairly large in terms of the dollars, but you didn t get them all
until the risk was taken out.
Why that was important from the scientists standpoint was
the scientists were the people generating the revenue, because
when we achieved these benchmarks the company got revenue. And
we would try like crazy to get the revenue in a particular
Clearly, Bob was referring here to the phenomenon that later became
common in which class action strike lawyers would often sue after any
precipitous drop in share price. (TDK)
Hughes :
Swanson:
Hughes :
Swanson:
106
quarter so we wouldn t lose money. So that s what changed.
Before we had deadlines, like June 25th. Well, all of a sudden
June 25th became more important because June 30th was the end of
the second quarter, and if you got a million dollars the second
quarter, you d break even for that quarter, and if you didn t,
you d lose money. So there was a new element there. The most
important thing for the scientists was: they were part of the
strategy of where the company was going, and they were part of
generating the revenue. So never in the life of the company had
there been greater integration between business and science, and
all the goals and benchmarks were chosen to move the product
quickly to the marketplace. We only picked benchmarks that would
help us focus on doing those things we needed to have done in
order to get this product through the FDA and approved. So it
drove us; we used the market forces to drive and focus the
company on doing those things that it most needed to do to get
the products approved.
Did the benchmark structure originate with you?
Yes.
It is now pervasive in the industry?
Pervasive, yes. Yes, we started that.
SEC Procedures
Hughes: I understand from an article in Nature that Genentech s public
offering was held up a few days because the SEC wanted more
details about the company s operations to be made public. 1 Do
you remember that?
Swanson: It was probably pretty standard. Usually, you submit an S-l
[form] --we have one right here and they ask you a few questions.
Sometimes they don t review you, sometimes they do. But there
wasn t anything unusual about that. I think it was all the
excitement and, "Well, we d better look at this one because look
at all the publicity that s going on."
David Dickson, "Genentech Makes Splash on Wall Street," Nature 287,
no. 5784 (1980): 669-70.
107
Hughes: Your prospectus warns that your stock "involves a HIGH DEGREE OF
RISK." 1 Did you expect that?
Swanson: Oh, yes. This is pretty standard for all these things. In fact,
every prospectus you see today has this big risk section. It has
to be there for the lawyers, more than anything else, so that you
have said to everybody, "This is very risky." Most of the
investors don t read it. But the prospectus tells you, the
company isn t selling a product today; there s no guarantee that
it will ever have a product. It relies on key individuals, and
they may leave the company. All the bad things that could happen
have to be outlined in these prospectuses, and it s a standard
thing for all the different kinds of companies.
Hughes: Do you have anything more to say on the subject of the IPO?
Swanson: Well, you had asked, how do you do the pricing? Well, one of the
things you could say, "Well, gee, if the stock went up and ended
at 79, 2 and we sold a little over a million shares, so that every
point increase would have been an extra million dollars in our
bank, didn t you screw up, Swanson, by not pricing it higher?"
Maybe it could have been priced a little higher, but two or three
months later, it kind of settled into the low forties, so that
people who bought at thirty- five had 20 percent gain on their
money. They had made money, and all that speculative fever had
gone away, and the share price stayed there. 3 So maybe we could
have gone a little bit higher, but I think the goal of trying to
make sure that the investors made money was probably worthwhile,
and we got a lot of publicity that was probably worth much more
than what we gave up. So in the long run it probably was a
positive thing.
Corporate Culture and Strategy
[Interview 5: February 19, 1997] ##
Hughes: I d like to start with a quote from George Rathmann: "For a
biotechnology company, strategy probably means primarily the
Genentech, Inc., Securities and Exchange Commission, Washington,
D.C., Form S-l, October 14, 1980.
2 After going higher, the share closed at $71.25 on the day of the
initial offering. (TDK)
3 In fact, in a few months and for a few days the stock drifted under
the offering price, which reinforces Bob s point of conservatism in
pricing. (TDK)
108
establishment of a corporate culture or character." The emphasis
that he put on the importance of corporate culture surprised me.
Would you like to comment?
Swanson: I think that culture and strategy are related but different. The
culture is so critical to achieving the strategy. What we tried
to do in the early days of Genentech, and I think by and large
succeeded at, was to create a culture where anything was
possible. We believed in ourselves and that we could do it. We
set high goals, and we d strive mightily to achieve them. We
tried to hire the very best people. We gave them a lot of
freedom and ability to achieve the goals, the flexibility for
them to help in the goal- setting process, and once the goals were
set, for them to figure out the best way to get there on their
own or with their team. So that was very critical to the goal,
which I would say is strategic, to build a fully integrated
pharmaceutical company. We wanted eventually to make and sell
products and not just be a research company. I d say that was
the broad overall goal, but the ability to achieve that I guess
was related to culture. In fact, some people characterized our
goals as arrogant. "How could you ever believe that you could
achieve these things?" And it wasn t that at all. It was,
"Well, if we don t try, then we never will." And we wanted to
build a pharmaceutical company where no one had succeeded since
Syntex in the early fifties; it was that difficult. So having
the kind of culture that embraced that was critical.
Hughes: How would you describe that early culture?
Swanson: Well, I think just a "can-do" attitude.
Hughes: What kind of atmosphere did a person find when he or she came to
work at Genentech?
Swanson: There was a lot of excitement about the science, a lot of young,
bright people all working on the same goals. Maybe Dave Goeddel
captured the essence of it best. 1 As a hobby prior to joining
Genentech, he was a rock climber. Most of his friends have since
died in this sport, but he was a world-class rock climber. Their
whole attitude was to go up or to die. One of the first, most
successful, and still popular Genentech T-shirtswe had T-shirts
for events is a black T-shirt with a red oval and a Barley
Davidson set of wings and some DNA symbols. Underneath it says,
"Clone or die." I think that represented the approach: we re
going to win. We re going to succeed. There were people working
around the clock, whatever we were doing- -competing with Wally
Dr. Goeddel talks about his approach to research at Genentech in
ROHO interviews currently in progress.
109
Gilbert to clone insulin, a Nobel Prize winner at Harvard.
Whatever it was, well, we were going to do it, and we did.
We had established the ho-ho s to relax on Friday
afternoons, which were sort of an extension of what was done at
UC San Francisco where there were wine and cheese parties. But
at Genentech it really took on more of a meaning, okay, here is a
place of equals doing different jobs. There wasn t management on
the one hand and science on the other. There was, okay, we need
to take care of the business part of this; we need to take care
of the science part of this; and we re all in it together. So
ho-ho s were a way that people could get together in their shirt
sleeves and relax at the end of the week but wind up talking
ideas about how to do things better. Everybody was in their
shirt sleeves and no feeling of management about the place.
Hughes: Is youth a factor, too? You were of a generation.
Swanson: Yes. I was a young entrepreneur, and the science was so young
that most of the best scientists were newly trained, and
certainly they were the only ones willing to go to industry in
those days.
Hughes: It seems to be a very unhierarchical structure that you re
describing, in contrast to the university setting where you have
the professor as head of the lab.
Swanson: It was very conscious. And this is where Herb s and my
philosophyhe coming from the science, and I coming from the
business side--meshed almost exactly. He didn t put his name on
the insulin paper because he said, "Well, here are the people
that did the work. They should get the credit the young post-
docs." That s unheard of in the academic world. And I had the
same idea from the business side, which is, you give credit to
the people doing the work and give them the freedom to make the
decisions and make it happen.
Employees as Shareholders
Hughes: Were there financial bonuses in the early days, above and beyond
salaries?
Swanson: The philosophy was everybody was a shareholdereverybody from
the person washing the glassware to the presidentbecause I had
the idea that if you looked at this company as an owner, then
you d make the right decisions. You didn t need a thick policy
manual or anything. You needed a few guidelines about the way
110
the company wants to be. And the idea that, well, okay, if I
owned a hundred percent of this company, what decision would I
make in this case? Almost always you ll make the right decision.
Obviously, everybody can t own a hundred percent; but if
everybody owns shares and they make a decision- -not as an
employee but as an ownerthen it would work. That equality of
people doing different jobs, all with the same goals, was
something that we tried to foster, and I think was important.
Practical Jokes
Hughes: Another facet of corporate culture was the tradition of practical
jokes.
Swanson: You know, in working that hard, you have to let off steam some
way. In the hallways, there would be Nerf ball games, with the
little tiny basketball hoop and the little Nerf ball, and people
would be playing little games for dollars or something. 1 It was
a way of letting off steam. Some of the ho-ho s were very
creative in the sense that there were costumes at Halloween and
there were parties irreverent in a way, which was good. The
scientists sponsored a ho-ho where they had a bunch of Calaveras
jumping frogs that they named after the board of directors,
[laughter] I was a little green frog. It was called the French
ho-ho. They had a big circle in the cafeteria with the Eiffel
Tower and a box with all these frogs in it. Then they released
the frogs to see which one would get out of Paris first, out of
this circle. People were rooting for their favorite member of
the -board to hop out of the circle. [laughter]
Then there were little jokes. Tom Kiley was giving one of
the technicians a hard time, 2 and the technician decided to get
back at him. He took a tiny speck of radioactivity and taped it
to the end of a Geiger counter. He could secretly turn up the
volume and get it to really click like crazy. Tom Kiley was the
general counsel at the time. The technician came into his office
and said, "Well, I was eating lunch in here last night, working
late, and I spilled my experiment all over your seat. I just
wanted to let you know. I was a little worried about it, but I
Bowling for dollars, which after the IPO replaced pitching pennies.
The wall target was the same but the stakes were different. (TDK)
2 TDK (editorial license): At the insistence of the molecular biology
group I merely upbraided the technician, a new employee, saying his
football pool put the pending IPO at risk. He was unaware the conversation
was being broadcast to group members waiting outside my office door.
Hughes :
Swans on:
Hughes :
Swans on:
111
checked it. It s not too bad." He went over and put the Geiger
counter right where Tom was sitting and cranked up the volume.
It went "zzzzzzz." The technician said, "Oh, my God. I must
have spilled more than I thought." He held it up to Tom s crotch
and did the same thing, and of course Tom went completely crazy.
He had him going for about half an hour like this. [laughter]
But it was those kinds of things that went on that helped relieve
the tension and made it fun.
It also created bonds, don t you think?
a job.
This was more than just
Yes. This was a grand experiment in, Can we do this? We re all
in it together. Can we achieve it? Yes, working together.
It wasn t just, can we produce insulin? Or, can we produce
growth hormone? But can this industry really take off? I mean,
something bigger than Genentech. Was that a consciousness?
Yes. We knew that we were the leading company, and the one that
was going to create this industry if it ever got created, and
that was part of it. But it was more, can we create a different
kind of company, and at the same time make products to cure
disease? You have to admit that this business is more fun and
rewarding when it works than making hula hoops or something,
because, geez, you cure disease. And can we do that and at the
same time build a different kind of company, a company that s
modeled along the kind of philosophy that we have been talking
about? I think everybody was very much a part of that, and the
camaraderie and the comfort of the interaction between people in
the different walks of business was an important part of it.
An Integrated Egalitarian Company
Hughes: Well, you ve talked all the way through these interviews of your
early goal of creating an integrated pharmaceutical company, and
yet my image of a pharmaceutical house is quite different than
that of a biotechnology company. Did you mean a pharmaceutical
house in terms of the functions that would occur in Genentech but
within the different culture that you ve been describing?
Swanson: Right. We weren t trying to be a Merck or a Lilly. We were
trying to be a different kind of company, but we needed in the
long run to be able to make our products and sell them ourselves.
So that was always the goal. We used different production
processes to make our products. But we still made them, and
there were factories at Lilly and factories at Genentech. So
112
those things were similar. But in order to control our destiny,
we had to sell our own products.
Hughes: As you became more successful and grew, the culture associated
with the small start-up biotech company must have changed. What
has that meant to Genentech, and what does it mean now,
particularly in this atmosphere in the 1990s of partnerships and
strategic alliances?
Swanson: Well, as a company gets bigger, it gets more difficult to do a
lot of these things. So as we were growing, we worked very hard
at trying to think of new ways to do things that would keep the
culture alive and well, but would take into account that there
were many more people. As an example, in the early days an
individual might be responsible for doing one of the ho-ho s on
Friday, and then it became a competition between departments.
The financial department might do it one week, and then
manufacturing, and eventually it was the protein scale-up party.
You were trying to think of ways to keep the excitement alive ,
the we-can-do-it attitude and the equality.
There were little things, like there were no reserved
parking places. You got in early or you walked a longer
distance. That went for everybody. And we tried to take the
energy out of the offices issue in the sense that offices were
pretty standard. People can spend a lot of time thinking about
who has a bigger office or who has the corner office. So we
tried to take the energy out of that as best we could, even as we
got bigger, because you want worrying about, how do we get the
product out, rather than, am I a little junior or senior to so-
and-so based on different office size? Status came from what you
contributed to the success of the organization, not the
peripheral stuff.
Hughes: What I think you re saying is that you were trying to create a
better company internally. An argument could be made that you
need an impressive office for your top administrators to impress
the outside world, particularly the financial world.
Swanson: We didn t really worry about that. The culture things that I
talked aboutand I think you ve said it better than I--were all
done for the main purpose that we thought we would have, if we
did these things, a better, more productive company that would be
more successful and continue to be a place, as I used to say and
still do, where people enjoyed going to work every day. The goal
was to try and make Genentech more productive and successful and
a better operation.
113
Genentech Focus on Human Pharmaceuticals
Animal Health and Industrial Enzymes
Hughes: The Department of Agriculture approved Genentech s foot and mouth
disease vaccine in 1981. Yet despite the apparent success,
Genentech dropped veterinary products. Do you want to comment?
Swanson: Application of the science looked to be good beyond human health,
and a natural extension would be to animals. There was even some
early plant work and a little work at industrial applications.
It never got beyond maybe fifteen percent of the effort for all
the non-human health side. What eventually happened can be
characterized best by a Dave Packard comment to me at the board
of directors. "You really ought to focus a little more, boy,"
he d say. "Not too many companies die of starvation, but quite a
few get indigestion." What he meant was, we had expanded and
were trying to do a little too much. So we actually shrank back
the effort to only human health.
The industrial enzyme business was a joint venture with
Corning Glass, and that s been with a company called Genencor.
That s been pretty successful. I ran into somebody the other day
who said that Genencor was doing between three and four hundred
million dollars worth of business now in industrial enzymes.
Corning and ourselves are no longer part of it. It s a joint
venture between a Finnish company [Cultor Ltd.] and Eastman
Chemical. 2 So the ownership has changed, but it s nice to see,
and that was spun out. The animal health products were licensed.
Monsanto is -now selling bovine growth hormone where you get 20 to
40 percent more milk production with very little additional feed
intake. Well, obviously the risk when you license to others is
the reason for the other strategy of retaining product rights.
Monsanto took years longer than they should have to get that
product to the market and botched it many ways in terms of its
introduction. But it s approved and they re marketing it.
So we had these brief forays into these other fields, but
then shrank back to focus on our main business. There was a
brief period of time where we put our toes in other waters, and
111 [Secretary of Agriculture John R. ] Block Announces Production of
Foot and Mouth Disease Vaccine," United States Department of Agriculture,
USDA News Center, Washington, D.C., June 18, 1981.
2 Genencor became a public company in 2000 and trades on the NASDAQ
exchange. (TDK)
114
then, I think correctly, said, "Nope. Let s just focus on doing
what we do best."
Criteria for Product Selection
Hughes: A book analyzing strategy in the biotechnology industry made some
observations about Genentech. One was that Genentech made a
decision to market its "own products to hospital specialists in
four priority areas, endocrinology, immunology, cardiovascular
agents and virology." 1 What was the rationale for marketing to
hospital-based physicians? And were these four fields chosen
because that s where you thought you had products? Or was there
more to it?
Swanson: Insulin was licensed to Lilly. Growth hormone originally was
licensed worldwide to Kabi of Sweden, which was the leader in the
field. 2 But we were able later on, as we made quicker progress
ourselves, to reduce their royalty rate elsewhere in return for
getting back the rights to the United States so we could market
growth hormone in the United States exclusively. That was very
fortuitous .
I remember there were something like two hundred and fifty
thousand doctors around the country. So a small company like
ourselves couldn t market to all the physicians and explain and
detail the products. But in the case of growth hormone, as I
told you last time, there were only about five hundred pediatric
endocrinologists around the country, specialists in treating
disease. They accounted for most of, essentially all, the
treatment of the patients with growth hormone deficiency. They
were located in some major medical centers. So we said, with
five hundred physicians to talk to about the product- -and
initially our sales force was only and have that be the beginning
of our entry into selling products ourselves. So that really was
the start of it.
We picked each of the other areas in part because we had
products in the area or were working on products, but also
because the physician audience, while maybe being a little larger
than in the case of the pediatric endocrinologists, was still
manageable. For example, in the case of tissue plasminogen
Peter Daly, The Biotechnology Business: A Strategic Analysis,
(London: Frances Pinter Publishers, Ltd., 1985), p. 75.
Initially, Genentech retained nonexclusive rights in the United
States and later licensed back from Kabi its own U.S. rights. (TDK)
115
activator I think board-certified cardiologists are between two
and three thousand. They re the ones treating heart attacks and
tend to concentrate at major medical centers. We thought that s
the next logical step up for us in terms of being able to sell
these products. Whereas, if you picked a product that might be
prescribed by a general practitioner, there s no way that we
could compete against Merck or Lilly or any of the other
companies. So we focused on areas where we might be able to
market ourselves and not be at a disadvantage. In fact, with
growth hormone, even though Lilly came into the marketplace later
with all the power they could, we still maintain 80 percent
market share .
Hughes: Had you been advised to seek manageable markets?
Swanson: Well, early on, we hired marketing people from the pharmaceutical
industry. So they had knowledge, and there were people in market
research that you could consult. Maybe you would start out with
one person, but you were able to have people focus on gathering
the data.
The original philosophy was laid out before most of those
people were on board as part of the original business plan, or
the second version of it, which listed the criteria for product
selection. One of the added criteria was that we could be able
to market ourselves without being at a disadvantage in competing
with a giant pharmaceutical company. The criterion was added
that the basis for approval from the FDA should be clear. And
then there was the time frame for proving that. If a clinical
study would take ten years, you couldn t have your product on the
market for twelve. So you re looking for clear endpoints where
the studies could be done in a short time. And then you d go
back and ask, "Is it technically feasible to develop the
product?" A whole set of criteria. Was the invention something
that you could patent? So all those things went into the product
selection process.
Hughes: Another of Daly s points is Genentech s strategy of "non-drug
research spin-off into joint ventures." 1
Swanson: Well, this was a result of our focused strategy of clearing out
the animal health products and the other things . As I
mentioned, we had a couple of joint ventures. We had a
diagnostics joint venture with Baxter-Travenol that didn t work,
and an instrumentation joint venture with Hewlett-Packard that
MJaly, p. 75.
116
didn t work. Only the joint venture with Corning worked. Joint
ventures are very, very difficult because you have two different
companies, different cultures, different goals.
Hughes: Was Genentech managed differently than other biotech companies?
Swanson: Well, I m not as familiar with the others, and maybe it s better
to look, for example, to what Bill Rutter says about Chiron. 1
But at the beginning we were very focused on products, and that
made a big difference. I know Cetus at the time was more into
developing the technology. I said, "Well, let s make a product,
and we ll develop the technology we need to make the product,
and let the product drive the science, rather than the other way
around." Actually, we wound up doing better science because of
that, and also we got a product. So it was a matter of
incredible focus in those days. George Rathmann would be a good
one to talk to about that because he has a broader view. He was
nice enough to say, "Since you were breaking the path, I just
tried to follow whatever you did." [laughter] He probably
spent time looking at the different corporate models before
choosing one for Amgen.
Hughes :
Reaction of the Pharmaceutical Industry to Biotechnology
How was Genentech, as representative of the budding biotech
industry, viewed by the pharmaceutical houses?
Swanson: I think in the early days, it took either great vision or great
fear for the pharmaceutical industry to believe in biotechnology.
For Lilly, it was fear because they saw threatened an 80 percent
market share in selling insulin. So they were well motivated to
try some things that in fact turned out well. I have to say that
they weren t without vision. But [as I said previously], I think
the person that captured the vision best was Bertil Aberg, who
was head of research at Kabi in Sweden. He is part of the Nobel
committee. He was one of the early people to say, "This is an
important new science and technology, and we want to be part of
it." He came over to talk to us and eventually was the reason we
had an early relationship with Kabi in growth hormone. By and
large, many other companies didn t believe it. Even after
several visits to Syntex, they kind of laughed at us. Even after
some of the products were on the market, people were saying,
A second ROHO volume of interviews with William J. Rutter in which
he talks about Chiron is in process.
117
"Well, this recombinant DNA isn t going to be important." That s
obviously now changed.
Hughes: Pharmaceutical houses were built around the old methodology of
random screening for products. Introducing a different
methodology would require company restructuring.
Swanson: In a way. Initial drug company apathy towards biotechnology
wasn t crazy if you say that ninety percent or so of the products
in terms of style and volume are pills or small molecules that
can be taken orally. The early products of biotechnology were
peptides and proteins that had to be injected. So you re talking
about a technology built to deal with a relatively small
percentage of their market, at least in its early form.
Now, today you see much greater excitement because what
biotechnology s offering the pharmaceutical industry is a set of
tools to discover small molecules. So as biotechnology s grown,
it s fit more into the way they re thinking about it. The
genetics leads to gene targets associated with disease, and then
understanding and cloning of all the gene products can lead to
the point where you might be able to interdict that disease
process by blocking an enzyme action or something. That is their
traditional way of thinking, so they re much more
enthusiastically spending money today. Whereas in the early
days, those that saw biotechnology, saw it in a limited
framework. For example, Merck was interested because it fit into
vaccines, which were proteins delivered to develop an immune
response prior to getting the actual infection. It was a much
more limited enthusiasm.
Hughes : So if what biotech offered fitted into the existing program of a
pharmaceutical house--in Lilly s case insulin, in Merck s case
hepatitis B vaccine- -then maybe they were interested. But they
didn t say, "Ah, here s a wonderful new way of developing drugs.
We must get into the act."
Swanson: No, there wasn t any of that. And even when we set up this
alliance with Roche many years later, 1990--and you re talking
about a major alliancethere were others sort of interested, but
Roche was the only one that was very interested. They had a long
history of investing in the field through a research institute in
Nutley, New Jersey and some other places there. So a lot of the
enthusiasm has been generated relatively recently; year fifteen
on into twenty has seen a dramatic increase in pharmaceutical
company enthusiasm, compared to the early days.
118
Intellectual Property
Hughes: All right, patenting. [tape interruption] I want to start with
the Diamond v. Chakrabarty Supreme Court case because I
understand that Genentech participated as an amicus curias. Did
you have any particular part in the proceedings?
Swanson: Tom Kiley, who has a very good memory about what happened in the
early days, would be somebody to talk to. 1 In the early days, we
felt that the ability to patent microorganisms would be very,
very important to the future of this industry. So this case,
which didn t have a lot of commercial relevance, had a great deal
of relevance to the biotechnology industry in terms of drug
development. We felt that we needed to participate and we did,
and fortunately the court made the right decision.
Hughes: I suspect that you had to educate, or that Mr. Kiley had to
educate, the scientists as to why intellectual property was at
the core of what you were trying to do.
Swanson: Well, there s a quote from Lincoln- -and I m sure I m not quoting
him right--on the side of the Commerce Building in Washington,
D.C. It says that patents add the fuel of interest to the fire
of genius, or something like that. It s been clear for a long
time that patents were critical for commercial development. It
was really a critical part of this process to get scientists to
understand that. It was somewhat in conflict with this idea that
we were going to publish, and that was critical to getting the
very best scientists and having them and the company be
recognized for the quality of their research. So we developed
this idea that we are going to publish our work because we think
we get more benefit from doing that than we lose by telling our
competitors what we re doing. But we re going to patent it
beforehand.
As a philosophy, what happened is: scientists, you write and
publish just about as quickly as you can, and we ll make sure the
patent attorneys work around the clock on the weekends to get the
patent application filed before the publication actually gets out
there. In reality, that was the right message to send from both
sides: scientists, you re in control of this, and we re going to
have business or patent people work to your schedule. What
happened in reality was that there were compromises: I ve got to
get this patent application in. Can you send your manuscript in
See the ROHO oral history in process in which, among many other
topics, Mr. Kiley discusses the Chakrabarty case for which he wrote
Genentech s amicus curiae brief.
119
to Nature two weeks later."
longer delay.
But we re talking weeks , days , not a
Hughes: You re saying that scientific communication was not substantially
delayed because of the patenting process?
Swanson: Not at all. It went essentially on schedule- -probably faster
than it would have happened in the academic world because these
were all young scientists wanting to build their own reputation.
By and large the patent people danced to the scientific beat.
Hughes: Did every potential publication go through a vetting process,
presumably by the legal department?
Swanson: There s a process to make people aware that when they have an
idea they need to write it down in their notebook and sign it so
that the time of conception is recorded. So there was education
where, "Okay, you have a great idea. Write it down; get somebody
to witness it, and then go and talk to the patent people to see
whether it s something that should be patented or not . " So there
was this great awareness: patents are really important. But how
do we get them without slowing down the publication process? It
seemed to work pretty well.
The other things that they had to learn was, you can t go
out and just give a seminar about this stuff until the patents
are done. So it s not only publication, but it s also talking
about it. But again we said, "Look, you schedule a seminar, but
you make time available prior to that because we ve got to get
all these patents filed. If the patent lawyers need access to
you so they can get them filed so that you can give your seminar
when you want to, you ve got to be there." So it was that kind
of thing, and it seemed to work pretty well.
Hughes: You re not aware of instances where information got out before it
was protected?
Swanson: None that I remember.
Hughes: Genentech has a reputation for being aggressive in terms of
intellectual property. Do you want to comment?
Swanson: One aspect of it we haven t talked about was that because we were
the first to produce human hormones in microorganisms, we got
some very broad patent protection. We decided to use that to
protect our early products, but then we licensed it broadly for
anything beyond that. It was a very inexpensive license, and we
donated those royalties to the Genentech Foundation, which now
invests in biomedical research and other things in the local
northern California area. The idea was that you needed to
120
protect your own products --that was critical. But you didn t
want to stop the development of the science; otherwise you d
block everybody out of the business. I think you do need to be
aggressive. I think Tom Kiley has the analogy. He says it s
sort of like you ve planted the seed, and you ve raised the
crops, and someone else comes and steals the corn. Well, you
know, that isn t right. [laughter] So you have to stop them
from doing that. We ve had some battles, but only when somebody
was trying to steal our corn.
The Somatostatin and Insulin Projects
Press Announcements
Hughes: I read that Genentech made the announcement of the cloning and
expression of human insulin before the research had appeared in a
peer-reviewed journal. 1
Swanson: In that first expression of insulin, 2 there was obviously a rush
to get all the patents filed. Then City of Hope was very
aggressive in wanting to make an announcement about this; a
significant part of the work had been done there. They re an
institution that raises all their funds every year; there are no
endowments. So they wanted to have a seminar at their
institution and make a big announcement. I think Art Riggs 3 or
someone else made a scientific presentation which, although not
as complete as a publication in Nature, was still an accepted way
of breaking new news in terms of being part of a. conference or
something. But there was some criticism.
Hughes: Are you saying, it was really City of Hope more than Genentech
that was behind the public announcement?
Swanson: They were very much pushing. We didn t fight it because having
it earlier didn t hurt us. It was a race, you know. We didn t
know where Gilbert was on this, and it was clear that we were
successful. We wanted to let people know. It has been proven
"Labs Induce E. coli to Make Human Insulin," Medical World News,
September 18, 1978, p. 10-11.
2 Mr. Swanson says "insulin" here but means somatostatin. The reader
will find that Swanson corrects himself a few paragraphs later.
3 rime magazine credits Keiichi Itakura with making the presentation,
although it is quite possible that Riggs participated. ("Creating
Insulin," Time magazine, September 18, 1978, p. 102.)
121
clearly that we were successful way ahead of everybody else. At
the time, we didn t know that. On one hand, you wanted to make
sure it was patented, and then you wanted to let people know,
[pause] I m confused here; I was talking about somatostatin
rather than insulin.
Hughes: I ll make a note in the transcript to clarify.
There also was a public announcement regarding Genentech s
successful cloning and expression of human insulin [September 6,
1978] . l
Swanson: I don t remember that as clearly as the somatostatin
announcement. That s what I was talking about earlier.
Hughes: Where was the press announcement about insulin made?
Swanson: I don t know where it was. [pauses to think] It may have been
made at City of Hope, as well. 2 I know we had this long
negotiation with Lilly, and the only thing that got them to sign
was that they wanted to be part of the announcement. They flew a
team out on the weekend, and we worked the weekend in L.A. So it
makes me think the announcement was at City of Hope so Lilly
could be part of the announcement as if they were really part of
this development, because pieces of the genes were synthesized
there. 3
Relations with Eli Lilly
Hughes: Was the contract with Lilly the first Genentech had made?
Swanson: No, I think actually the Kabi contract was signed first, even
though we had started the discussions on insulin earlier. Again,
the insulin agreement didn t get signed until right before we
announced it.
"First Successful Laboratory Production of Human Insulin Announced,"
Genentech Inc., September 6, 1978. (Corporate Communications files,
Genentech) .
2 Mr. Swanson is correct.
3 The agreement was signed on Sunday and success in cloning insulin
was announced on the following Monday. Lilly was part of the achievement
in the sense they had financially supported the project while negotiations
proceeded. (TDK)
122
Hughes : Do you have any comment to make about what I gather were not the
easiest of negotiations with Lilly?
Swanson: There was a difference between Kabi having the vision- -at least
Kabi s senior technical guy--and Lilly being motivated by fear.
If you are motivated by fear, you don t do anything until you
absolutely have to, right? I was in this negotiation, trying
very hard to figure out how a tiny company like ourselves could
protect the technology, because obviously you re going to give it
to someone else to make the product, but they can steal it. I
was trying to figure out how to structure the deal, and that was
part of the delay as well, because it was the first one we wrote.
People thought I was a little paranoid about it. But what
happened is, Lilly did exactly what I was worried about. They
took the technology and started working on growth hormone. It
wasn t until just recently that we managed to settle that suit
for over a hundred and fifty million dollars. The other side of
patents is they only give you the right to sue, and if the big
company wants to spend millions and millions of dollars to fight
you, unless you ve got that same money to spend, you re at a
disadvantage. In the meantime they can be using the technology.
Even though I was worried about that, I guess I was quite a bit
surprised that these big "ethical" pharmaceutical companies would
behave that way. I m very disappointed in the way Lilly behaved.
Hughes: Was it a considerable financial burden for Genentech in those
early days to fight a pharmaceutical company?
Swanson: Well, we didn t even know about Lilly s misuse of our technology
until much later. It didn t come out until later that they had
actually taken it for other purposes. Then, of course, we were
much stronger and able to fight it. But that s another reason
why you have to eventually make and sell your own products,
because you can t rely on others. 1
It s
Lawsuit with the University of California, 1982
Hughes: There was a lawsuit in 1982 in which UC sued Genentech, claiming
that Genentech had illegally obtained a cell line used in the
insulin work. Do you want to comment on that suit?
I believe Bob meant other companies don t always keep their
promises. (TDK)
123
Swanson: I don t remember a great deal.
Hughes: If it had been a real threat to the financial survival of
Genentech, I suspect you would remember it.
Swanson: Not necessarily. [laughter]
Hughes: I read that it was growth hormone, rather than insulin, that
indicated that a viable company could be built on genetic
engineering. Would you agree with that assessment, which I got
from an article in Esquire written in 198A? 1
Swanson: Yes, because it was the first product that a biotechnology
company had developed in its own labs and then was proposing to
market itself. The other products had been licensed to others,
and in some sense you needed to complete the development cycle,
and that was really the first time it had been done.
Negotiating: Substance and Style
Hughes: Please comment on negotiations concerning growth hormone.
Swanson: I remember going over to Sweden with Herb [Boyer] to negotiate
the deal in the wintertime and just getting out of Stockholm
ahead of a blizzard. [laughter] I still remember that clearly!
Hughes: Was it typical of those days that it would be you and Herb doing
the negotiations?
Swanson: Well, that was actually our first trip to Europe as part of the
discussions. We visited with Kabi and Institute Merieux, with
the latter to discuss hepatitis vaccine. I think we may have
seen some others companies but I don t remember. When we arrived
at Kabi, they had the American flag flying out in front, and it
was such a nice feeling because I had never been to another
country on business before. So we adopted that custom at
Genentech, and today if you come to visit from another country,
we put up your flag in front of the building.
Hughes: Are there any general characteristics of negotiations with a
European company different from those with an American? A
different ethic?
Randall Rothenberg, "Robert A. Swanson, Chief Genetic Officer,"
Esquire magazine, December 198A, 366-74.
124
Swanson: No, . . think that by and large the relationship with Kabi was
really outstanding. We did have a vaccine relationship with
Merieux, but they behaved, I thought, very badly. They slowed
the development of the hepatitis vaccines until their colleagues
at Pasteur came up with their own product and then decided to
market the Pasteur product rather than ours . So we had to sue
them to get the product back. But it s a shame because Merieux
was the number-one vaccine competitor to Merck, and they probably
could have done a lot better if they had moved more quickly than
they had. So that was disappointing.
It was fun negotiating these agreements with Tom Kiley
because I d get very set that we needed at least these terms, and
he was willing to trade off different points: "Well, you can give
them this and get this." And I needed that advice in those days
in order to come to those agreements. After I d sign an
agreement, I was sure for the next two weeks that I d given away
too much. [laughter] But they were all critical for our
development in those early days.
Hughes: Do you have the reputation of being a tough negotiator?
Swanson: No, I don t think so. I wasn t tough; it was just so important.
You could only give things away or license them once, right? Am
I asking for enough? Am I protected? What can they do to cheat
on this?
Hughes: I can imagine it felt a bit overwhelming because of the disparity
in size of the two business entities.
Swanson: I think I ve always been sort of fair. It has to be fair. Both
people have to win on these things. I think what drove me and
motivated me was the disparity in size between the companies in
those early days, and how we were really at the mercy of these
larger companies. Was there anything that you could put in the
agreement that would help protect you? We tried to think of all
those things. But nobody had done any of these agreements. It
wasn t like you could look and say, "Okay, here s how somebody
else does it," because we had to really invent them as we went
along. So that made you more nervous about it. It was more that
than toughness.
Interactions with Other Biotechnology Companies
Hughes: Did you have any significant interaction with the other early
biotech companies? I m thinking of Amgen and Biogen and
eventually Chiron.
125
Swanson: Very, very little. I think we talked about the origins of Biogen
and Dan Adams, who was with International Nickel.
Hughes: Yes, you did.
Swanson: So there was some early interaction there. You never can say
whether it would have been good or bad. To the extent you were
thinking more broadly about other pieces that could be
consolidated, then you d take your mind off what you were doing.
Hughes : Were these newer companies hot on your tail?
Swanson: Oh, the competition was intense and you were competing against
the academic community, too- -not only for the products but also
for raising money and attracting people. You were competing in a
whole range of areas.
Hughes: The fact that Genentech was first off the mark gave it a
considerable advantage?
Swanson: I think it gave it some advantage, but the technology was
developing rapidly, and things that took a long time at first
were later more quickly done. So you had to keep moving very
quickly in order to stay in the lead.
Swanson ! s Retirement from Genentech s Board of Directors. 1996
Swanson: At the end of last year [1996], I retired from the board of the
company and continue to be a consultant. It was twenty years,
and it was a time for me to say, "Twenty years is enough." I was
comfortable with the leadership that was in place and with Art
Levinson who started at Genentech as a postdoc and is now the
chief executive officer. That was something very nice to see,
and I think his leadership will continue and do well. It also
allowed me a chance to focus more energy on venture capital and
helping other companies get started.
What was very nice is the spontaneous e-mails and other
things that came as people heard about this, saying, "Gee, we re
sorry you re not here because we still get energy when you walk
around the halls." Which is what I used to do in the early days.
People would really appreciate having me walk by and be
interested in what they were doing: "How s it going? What s
section was moved for better chronology from its original
position earlier in the transcript.
126
new?" Also, for them to say, "Gee, this is a wonderful place to
work. Thank you for helping create it that way." Within the
last year, they hired an outside consultant to look at the
culture. The response was, "I ve never been in a company like
this where people understand clearly what the goals are as well
as what their individual role is in achieving those goals and are
as excited and motivated to work hard and upbeat about what
they re doing." It s changed, and those that have been there a
long time say, "Well, gee, it s not like it was in the old days."
You always have that, but it s nice to see the basics of the
culture continue and get confirmed by an outside reviewer.
Guiding Principles
Hughes: Is there a guiding principle that you ve used throughout your
career?
Swanson: Well, I think I tend to be honest and straightforward in my
dealings with people. And I focus quite a bit on how do you
create value, how do you build value, what are the things that a
company can do to make itself more valuable? Those are the
things that come to mind right now as we sit here.
Hughes: If you had it to do over again, what would you do differently?
Swanson: I think many of the strategies and philosophies were by and large
right on. I might have looked a little more outside the company
we were building to what was going on in other companies and
technologies, looking at how those might be consolidated or
incorporated into one entity. I had very much of a live-and-let-
live approach. I think it was fine, but I think more things
could have been brought together in those early days .
Hughes: Are you thinking of the budding biotech industry? Or broader
than that?
Swanson: No, the biotech industry. As technologies developed outside, I
don t know that we-- Mergers and acquisitions are always
difficult to do, so we tended just to focus on what we developed
ourselves. But I think there s a role for them in terms of the
ability to more quickly build up a company. I think we could
have spent a little more time looking outside.
127
Swanson s Most Significant Contribution
Hughes : What do you see as your most significant contribution?
Swanson: Well, I m very proud of the way the company has turned out- -the
culture in the company and the way it works as an enterprise. ]
think the philosophy of Genentech is a good one , and it s
contributed significantly to its success. I m proudest of the
people that we ve been able to attract, the things that we ve
been able to accomplish, and the way we ve gone about doing it.
I think we did a lot of things right.
Hughes: You made a comment off tape about the academic perquisites of
Genentech. Will you say a word for the record?
Swanson: Oh, sure. There were two or three seminars a week by people
coming from all around the world. There was the idea that
postdocs were an important part of bringing new tools, new ideas,
energy to an enterprise. Genentech had and still has an enormous
postdoc program. There are now sixty to ninety throughout the
company. It was a way of attracting some of the best scientists.
If you could keep the best of the postdocs, they became new
scientists in the company, and there was an energy and excitement
that came from having that there. There was very much an
academic atmosphere. I think the difference between us and some
of the other companies was we had this goal of products, and the
drive for products drove the science.
Hughes: Well, thank you.
Transcribed by Shannon Page and Caroline Sears
Final Typed by Shannon Page
128
TAPE GUIDE--Robert A. Swanson
Interview 1: October 28, 1996
Tape 1, Side A
Tape 1, Side B
Tape 2, Side A
Tape 2, Side B
Interview 2: November 20, 1996
Tape 3, Side A
Tape 3, Side B
Tape 4, Side A
Tape 4, Side B
Interview 3: January 24, 1997
Tape 5, Side A
Tape 5, Side B
Tape 6, Blank
Interview 4: February 7, 1997
Tape 7, Side A
Tape 7, Side B
Tape 8, Side A
Tape 8, Side B
Interview 5: February 19, 1997
Tape 9, Side A
Tape 9, Side B
Tape 10, Side A
Tape 10, Side B
1
9
20
30
32
41
49
58
61
69
77
85
94
102
107
115
122
127
APPENDIX
A Curricula Vitae 129
B Swanson s Outline for His Presentation to a California
Venture Capital Firm, April 1, 1976 131
C Genentech, Inc., 1979 Corporate Plan 143
D Draft of Swanson s Acceptance Speech, Stanford Business
School, Entrepreneurial Company of the Year Award, 1983 162
E Swanson s Admittance to Membership in the Royal Swedish
Academy, March 13, 1984 176
F Swanson as "Biotech Superstar," Cover, Business Week,
April 14, 1986 177
G Swanson s speech, Carolinas Chapter of the Association for
Corporate Growth, January 31, 1996 178
H "Genentech s Chairman to Leave Firm," San Francisco
Chronicle, December 13, 1996 185
I Obituaries: Wall Street Journal & Nature magazine 186
J Posthumous Award of National Medal of Technology, 2000 189
129
ROBERT A. SWANSON
APPENDIX A ? ?,
Educacion
1965-1970
Address
2275 Broadway 0417
San Francisco, CA 94115
Telephone
Home: (415) 929-0273
Bus.: (415) 396-3275
Single
5 feet 7
150 pounds
excellent health
ALFRED P. SLOAN SCHOOL OF MANAGEMENT, M.I.T. Cambridge, Mass.
Master of Science in Management - June 1970
Studies emphasized Marketing and Organizational Development.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Bachelor of Science in Chemistry - June 1970
Cambridge, Mass,
Experience
1976-Present
1975
1270-1974
GENENTECH, INC. - President
San Francisco, CA
PARTNER - KLEINER & PERKINS VENTURE CAPITAL PARTNERSHIP
San Francisco, CA
Three man organization investing in and managing the growth of
early stage technology companies. Responsible for the higher
risk funds of several institutions and wealthy families.
CITICORP VENTURE CAPITAL LTD. New York, NY
San Francisco,
Investment Officer responsible for analyzing and advising
venture capital investment situations. Duties include
developing potential investment opportunities, structuring
and negotiating investment terms, investment decisions,
and board level direction of small rapidly growing companies.
Concentrated on the West Coast investments of the $70 MM
portfolio. Instrumental in establishing the first domestic
branch office in San Francisco.
CA
1969
1968
Military
Background
ROHM AND HAAS Philadelphia, PA
Summer position as a Market Research-Commercial- Development
Specialist. Responsible for analyzing new markets and
recommending action. Originated and completed study on the
use of pressure sensitive systems in the mobile home industry.
HERCULES Wilmington, Del.
Summer position as a Chemist in the Materials Science Division
of the Research Center. Developed new physical testing
procedures for studying the crazing behavior of the thermoplastics,
Honorable Discharge - U.S. Army Reserve - 71st Judge Advocate
General Detachment, The Presidio of San Francisco.
Born in New York City; raised in Miami Springs, Fla. Interests
include participative sports, theatre, music, and reading.
Basic knowledge of German.
References- Personal references will be furnished upon request.
(Swanson s curriculum vitae around the time of Genentech s foundation.)
130
Genentech, Inc.
ROBERT A. SWANSON
Co-Founder, Genentech
Robert A. Swanson founded Genentech in 1976 with Dr. Herbert Boyer, a
biochemist at the University of California at San Francisco. Swanson, then a
29-year-old venture capitalist, approached Boyer about the possibility of
developing biotechnology and marketing useful products using recombinant
DMA technology.
Although significant advancements were being made in the area of
molecular biology in the 1970 s, industry had yet to recognize the potential
application of these advancements. Swanson realized the opportunities for
recombinant DNA technology to create beneficial new products. Under his
guidance, Genentech has provided broad applications of this science to
modem society, developing new products such as human insulin, interferons,
human growth hormone and thrombolytic agents.
Swanson was chairman of the board of Genentech, Inc. from February
1 990 to December 1996. Prior to that time he served as a director and as chief
executive officer of Genentech.
Prior to forming Genentech, Swanson was a partner with Kleiner &
Perkins venture capital partnership in San Francisco, and from 1970 to 1974,
he was an investment officer with Citicorp Venture Capital Ltd.
Swanson has a bachelor of science degree in chemistry from the
Massachusetts Institute of Technology and a master of science degree from
MIT s Sloan School of Management.
He serves on the board of fellows of the Faculty of Medicine at Harvard
University and is a member of the Biology Visiting Committee of, and has
served as a trustee for, the Massachusetts Institute of Technology. Swanson is
a member of the Royal Swedish Academy of Engineering Sciences, a member
of the board of Molten Metal Technology, Inc., and chairman of the board of
Tularik, Inc. He also serves as a trustee of the San Francisco Ballet, and the
Nueva School.
# # #
2/5/97
. .. i < -"
: ...
131 APPENDIX B
GENE.VTECH
Outline for Discussion
KLEINER & PERKINS
April 1, 1976
I. Corporate Background
II. Technology Update
A. Synthesis
B. Stitching
C. Replication and control
D. Development Program
III. Corporate Goals and Strategy
IV. Initial Product
A. Criteria for selection
B. Market Estimate
C. Rough economics of production
V. Funding Stages and Capital Requirements
132
CORPORATE GOALS
To engage in the development of unique microorganisms
that are capable of producing products that will significantly
better mankind. To manufacture and market those products.
To build a major profitable corporation.
To advance the state of the art of molecular biology and
make significant contributions to understanding the life
processes .
- To attract and motivate outstanding people.
-
yfg& 133
STRATEGY
To identify one existing market where a company engineered
microorganism could economically compete with current production
techniques. (see product characteristics)
To produce and market the product on an OEM basis to the major
suppliers in that industry.
To be the first company to successfully commercialize "DNA
stitching" technology.
To proceed with the engineering stage without investing in
substantial amounts of capital equipment.
To use our successful completion of the first engineered
microorganism to attract additional capital for production
and laboratory equipment, marketing expense and development
expenses for follow on products.
To build a marketing organization by picking products that
follow similar marketing, distribution, and customer service
channels.
To develop corporate strengths so as to be ready to supply
biologically active polypeptide hormones and antibodies as the
technology evolves.
134
PRODUCT CHARACTERISTICS
1. Bugs that can be built with the current technology.
Established market need for the product which is available
today only in limited quantities or at high prices
3. Estimated cost of production a fraction of current selling
price (i.e. potential for high profit margins-}
4. Market potential greater than ?10M
5. High value, low volume product to keep capital equipment
and production cost down
6. FDA requirements limited to proof of purity
7. Well defined limited customer base
8. Major impact on well being of mankind
135
INSULIN
According to the National Commission on diabetes, ten million
Americans suffer from the disease. Of these, three million take
some medication and half of these regularly use insulin. The
incidence of diabetes is increasing at 6% per year.
Insulin is distributed by two U. S. manufacturers, Eli Lilly
and ER Squibb and Sons, either directly (Squibb) or through
wholesalers -(Lilly) to local pharmacies. The product is sold
without prescription in three concentrations and various forms -
Regular, N?H, Lsnte, Semi-Lente, Ultralente, Globin and Protamine
Zinc. The various forms are complexes that allow for the delayed
release of insulin within the body. A patient can mix various types
to obtain a more level daily body concentration tailored to his
diet and lifestyle. Depending on concentration and type, the
product sells for between $1.70 and $4.00 for lOcc.
From the different sources of raw data, the end user market
size can be estimated several ways:
1. There are 1.3M to l.SMillion users (United States) of
insulin who, according to Squibb and the National
Commission on Diabetes respectively, spend between
$100 and $150 annually for insulin. The estimated
U. S. market is between $130M and $225M.
2. There are approximately 35 billion units of insulin
used annually in the United States. Taking an average
of 800 units per 10 cc vial at an average price of
$3.00 per vial, the market is estimated at $131 million.
Pharmacies use insulin as a loss leader, taking a very small
markup, perhaps 10%. Diabetics usually require other medications,
m^^SiS^-:* 136
and aside from humane reasons, pharmacies would like to use a low
price to attract these good customers to the store. Wholesalers
work on a 331 mark up.
Taking a conservative end user market size of $130 million
and 50% total markup, it appears that the drug companies are
looking at an $85 million market. Because the use of insulin is
not as extensive in other countries of the world. (i.e. Russia
with a similar population uses l/10th the U. S. quantity of insulin)
it is estimated that the world market is 150% of the U. S. market,
or around $130 million.
Because of Genentech s strategy to market insulin on an OEM
basis to a major pharmaceutical company who will pay for the fight
to market the product on an exclusive basis, and who will be
responsible for the final purification steps and regulatory approval,
Genentech s market is smaller. Genentech will replace the major
slaughter houses. The largest . suppliers of bovine and porcine
pancreas (the gland which is the source of insulin) to the industry
include Armour, Swift, Wilson, Oscar Meyer and others.
In 1975, there were 36 million cattle and 65 million hogs
slaughtered under governmental inspection by the Department of
Agriculture (92% of the total slaughter). According to the American
Meat Institute, the average weight of pork pancreas is -r!21 pound
and the average beef pancreas in .585 pound per animal. Total
U. S. production of pancreas glands is estimated at around 30 million
pounds. The current market price is $1.10 for both hog and -cattle
pancreas. It has increased from $0.40 per Ib. in 1972. Since-
there is a shortage of pancreas, it is assumed that almost all the
production is used for insulin (the only alternative use is the
byproducts vat) , resulting in a $33 million us market.
137
ECONOMICS
Insulin is currently extracted from bovine and porcine pancreas
which are sold in bulk to the producers at a current price of
51. 10 per pound.
The extraction process is .01% efficient by weight.
- Based on this conversion factor and forgetting the costs of
the complicated extractipn and purification process (some of
which would be eliminated with our product) , the pharmaceutical
companies should be willing to pay $ll,000/lb. for insulin.
Our production would take place in a 150 liter vessel where
three to five pounds of bacteria cells could be produced on
$100 of medium using one technician on an eight hour shift.
Current yields indicate that insulin would exist at between
10-30% of the cell weight. Results: .3 to 1.5 pounds of ;
insulin valued at $3 ,300- to $16 ,500 per shift.
Based on one pound of insulin from every ten thousand pounds
of pancreas, there is a need for 3000 Ibs of insulin in the
US market. A 150 liter vessel on three shifts, 200 days per
year, could produce 20% of the US needs.
138
FINANCING
STAGE I
- To be accomplished
1. Complete screen for optimal first product
2. Formalize business plan
3. Negotiate license agreement with the universities
4. Identify and attract other key technical people
5. Formalize facility arrangements
6. Raise the money necessary for Stage II
- Time to accomplish above - maximum six months
- Cost - approximately $6,600 per month
STAGE II
- To be accomplished
1. Build the desired microorganism
2. Negotiate marketing agreements
3. Identify next product
4. Raise money for production and laboratory facilities
- Time to accomplish above - one to one and one-half years
- Cost - approximately $500,000.
STAGE III
- Fully operational company
-:;V:^Cr;
139
STAGE I: Monthly Budget
- Salary
Management $2,500
- Rent (with secretarial
service) 500
- Office Expense 100
- Travel & Entertainment 700
- Telephone 300
- Legal 1,500
- Consultants 1,000
$6,600
140
STAGE II
A. Monthly Budget
Salaries
1 Senior Organic Chemist
2 Junior Organic Chemists
1 Microbiologist
1 Secretary/bookkeeper
Boyer
Swanson
(marketing and production positions
filled near end of development)
Payroll Taxes and Benefits (12%)
Occupancy Costs
Office
Laboratory
Supplies
Office
Laboratory
Xerox Costs
Telephone
Travel and Entertainment
Depreciation
Consultants
Legal and Accounting
B. Capital Equipment
Office
Laboratory
$ 2,000
2,500
1,500,
1,000.
1,000.
2,500.
10,500.
1,260.
1,000.
100.
5,000.
200.
500-
1,000.
500.
1,000.
1,000.
$22,060.
5,000.
55,000.
$60,000.
BUSINESS PLAN OUTLINE
I. Corporate Description
A. Nature of business
B. Corporate history
C. Goals and philosophy
D. Projections
II- Placement
B. oL SC P p^ d V eCUrit
C. Capitalization
III. Technical Background
A. History of discoveries
B. Current technology
C. Future potential
IV. Market
A. History of disease
B. Current treatment
1. Products currently offered
2. Cost and pricing
3. Distribution and customer service
v - Product
A. Proprietary nature
B. Cost advantages
C. Marketing strategy
D. FDA -Regulations
E. NIH Guidelines
VI. Development
A. Technical development steps
1- Time
2. Cost
3. Personnel requirements
B. Capital equipment requirements
C. Facilities contract
3. Patent rights
^w"N ? 142 ."^ ;, - ; -;
Financial
A. Projections
1. Profit and Loss
2. Balance Sheet
3. Cash Flow
B. Banking relationship
C. Additional financing required
VIII. Management
Responsibilities, resumes
Board of Directors and scientific advisors
IX. Appendix
A. Product literature
B. Market Data
C. References
1. People
2 . Market
3 . Technology
143
APPENDIX C
GEN EN TECH, INC,
l~tf-.:-.-.,;
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tje&&&F if f
1979
FK ..-j-v :..... -,^~^-
^.:>.::^--T . v . : :
CORPORATE PLAN
COPT t
ASSIGNED TO
144
GENENTECH 1979 CORPORATE PLAN
TABLE OF CONTENTS
Page Number
I. CORPORATE MISSION ........................................
II. CURRENT BUSINESS POSITION
A. Performance Milestones .................... .......... 2
B . StrengLhs/Weakneuses .............................. 4
C. Competitive Position ..................... ........... 5
;. III. CORPORATE STRATEGY - SUMMARY OF GOALS & OBJECTIVES ........ 6
^. ; .
""-!?. . PRODUCT DEVELOPMENT SUMMARIES ............................ 7
; v. DEPARTMENTAL PLANS FOR 1979
A. Research &. Development ........................ ....... 10
B. Process Development & Manufacturing ................... 14
C. Finance & Administration ............................. 17
D. Marketing ............................................ 19
VI. . BUDGETS
. A. Manpower Summary - 1979 ............................. 21
B. Capital Budget & Facilities Plan - 1979 .............. 22
. . C. Revenue Forecast - 1979 ..... ................... ..... 30
D. Expense Budget - 1979 ............................. 3 j
",;.- E. Cash Flow Forecast - 1979 ............................. 32
P. Income Statement - 1979 ............................... 33
. V; ; G. Projected Balance Sheets - 1979 ...... , ................ 3 *
; i H. Projected Sources & Uses of Funds - 1979 .............. 56
VII. LONG TERM PROJECTIONS
A. Revenue Forecast (1979.-1984) ...................... ... 138
B. Income Statement Projections (1979-1984) .............. 39
C. Prof orma Cash Flow Forecast (1979-1984) ................ 40
VIII. ASSUMPTIONS APPENDIX
.41
(i)
. ; ..-
-.. 145
I. CORPORATE MISSION
A. Cenentech is a privately financed high technology
corporation owned by management and venture capital
Investors. Its purpose is to commercialize and
bring to the public the benefits of new molecular
biological technology.
B. Cenentech is a fully integrated company engaged
in the research, development, manufacture and
marketing of commercially valuable substances
produced by specially engineered microorganisms.
It Is also in the business of conducting contract
research and the sales of specially designed
Microorganisms .
C. The company has built one of the finest scientific
teams in its field anywhere In the world. Cenentech
will continue to attract and motivate outstanding
people to further build Its capabilities In research,
manufacturing, marketing, finance and administration.
"
D. Genentech s technology will have applications in a
broad range of pharmaceutical and industrial markets.
It will be capable of producing widely varied products
Including human and animal hormones, vaccines, immune
response stimulators, antiviral drugs and numerous
enzyme catalyzed chemicals and bio chemicals . Cenentech
will be creating products, some of which are too scarce-
y$?r: :--. . v r, : . or too expensive to produce today and some of which
HErS^V* 1 will be directed toward, totally new markets.
t jf.; -^ -.- . ..- v *
ft**-
:;:
(D
146
CURRENT BUSINESS POSITION
A. PERFORMANCE MILESTONES
1976
Jan.
Mar.
Herbert Boyer of the University of California
at San Francisco, and Robert Swanson of
Kleiner & Perkins begin a cooperative partner
ship to investigate the most promising commer
cial applications for recombinant DNA technology.
1976 Genentech s -initial Business Plan is prepared to
outline the steps for developing the bacterial
production of somatostatin in 1977 and for
developing human insulin in 1978.
April 1976 Genentech is Incorporated - Thomas J. Perkins,
Herbert W. Boyer, and Robert A. Swanson are elected
to the Board of Directors.
May 1976 Initial financing provides - Genen tech, Inc. with $100,000
seed. capital -<g $.50 per share raised from Kleiner & Perkins
venture capital partnership.
Dec. 1976 Negotiations conclude successful Research Agree
ments with University of California, San Francisco,
City of Hope National Medical Center, Duarte, and
California Institute of Technology, Pasadena.
Genentech .will fund and manage research. with
rights to commercialize the products developed
and receive protection under any patent able invent ions
in return for a small royalty on product sales.
Dr. Keiichi Icakura, a specialist in DNA triester
synthesis, and Dr. Arthur Rlggs, an expert in
bacterial control mechanisms, join Genentech team.
Feb. 1977 Somatostatin Project begins.
Mar. 1977 A second round of financing provides $850,000
for funding the somatostatin project. .
The money was raised from Kleiner and Perkins
(Hlllman, Rockefeller Families), the Mayfield
Fund (Ford Foundation), INCO, Innoven Capital
(Emerson Electric and Monsanto), Sofinnova,
and Hambrecht and Quist for $2.89 per share.
Aug. 1977 Genentech accomplishes a major scientific break
through by achieving the first microbial expression
of a human hormone, somatostatin. The somatostatii .
project was completed In seven months. The achieve
ment is acclaimed as a "scientific breakthrough of
the first order" by Dr. Philip Handler, President
of the National Academy of Sciences, before a
Committee of the U.S. Senate.
(2)
A. PERFORMANCE (CONT D)
Nov. 1977 Insulin Project begins.
Feb. 1978 Cenentech leases space and completes the initial
construction of new facilities at 460 Point San
Bruno Blvd., South Sn Francisco. DNA synthesis
work continues at the City of Hope, but gene liga-
tion, stitching and expression are accomplished
at bur new "world headquarters."
Mar. 1978 A third round financing to provide $950,000 at
$8 per share for financing the insulin project
is quickly completed. This new equity ie expected
to be sufficient to complete the Insulin project
and Genentech s Phase II expansion program.
Aug. 1978 Bacterial production of "Human" insulin achieved
in ten months - ahead of year end schedule. Cenen-
tech also signs its first major development contract
with , to begin developing the
bacterial production of human growth hormone. Cenentech
will receive cash payments and royalties, while
retaining marketing rights.
Sept. 1978 Eli Lilly signs a contract with Genentech for the
rights to manufacture and market Cenentech developed
human Insulin. Agreement calls for multlmillion
dollar payments and continuing product royalties
on net sales.
Nov. 1978 Research for bacterial expression of human interferon
begins.
Dec. 1978 Phase II of Genentech s facilities expansion program
. is completed to add one new organic, two new
biochemistry laboratories, and offices.
Genentech expands Its team to 26 employees (with
12 Ph.D. s), and an additional 12 outside consultants.
Dec. 1978 Cenentech 1 s second Business Plan Is completed
outlining the company s strategy for a fully
Integrated product development program which
requires a doubling of staff and facilities in
1979.
(3)
148
B. CORPORATE STRENGTHS/WEAKNESSES
One of Genentech s primary strengths is the quality and
depth of its excellent technical team. The company has
brought together under one roof an outstanding group of
professionals from all over the world. Our skills Include
DNA synthesis; m-RNA extraction; gene assembly, splicing,
ligation; manipulation of bacterial control mechanisms;
enzymology; bacterial fermentation; and protein expression
purification, and separation. Genentech will continue to
acquire complementary scientific disciplines as needed.
Genentech has attracted and hired a well rounded management
team in finance, marketing, and manufacturing. The company
is just beginning the extensive market research required
beyond its earlier work in insulin. Currently there is only
a small marketing staff and the company s detailed marketing
strategy will be developed during 1979.
Genentech established the position as the "technical
leader" among the academic and commercial groups pursuing
applications of recombinant DMA research. Using this
technology in 1977, the company achieved the first bacterial
expression of a protein, somatostatin. Again, in 1978,
Genentech achieved the first production of a major marketable
human hormone, human insulin. These achievements have been
widely recognized by the world s scientific and industrial
communities, and in perspective will probably mark the
beginning of a concerted effort to develop a large number
of new drugs and products utilizing this new technology. .
As an early entrant into this field, Genentech has retained
an outstanding patent attorney and has filed a number of
broad patents to protect its proprietary position. Patents
currently on file should act as substantial barriers to other
corporations use of the technology.
Genentech s current financial condition Is sound. At its
current size, the company Is able to operate at a cashflow
breakeven with existing contract revenues. To grow substantially,
however, and realize the full market potential for. the products
developed from its technology* the company will have -to raise
additional equity to finance future marketing and manufacturing
capabilities, and to fund the clinical trials necessary to
Introduce a number of the promising new drugs being developed.
(4)
149
C. COMPETITIVE POSITION
Genentech is at the forefront of the recombinant DNA
field as measured by capability and achievement.
Cenentech has the only technical teams integrating
all the needed technologies for efficient product
development.
By continuing to develop the. latest techniques, and
by extensive patenting of inventions, Cenentech believes
it will be possible to maintain substantial industrial
leadership in this technology. Industry has not to date
shown significant innovation in this field and most are
two years away from an effective product generating
capability using recombinant DNA. Recent advances have
created substantial outside interest among large corporations
who have now begun to initiate their own research programs.
In manufacturing, Cenentech Is well along in the commercial
scale-up of Its technology and has an operating manufacturing
facility. Academic institutions are generally not concerned
with the commercial aspects of this technology, and major
corporations are not believed to be addressing the unique
process development problems of the technology.
As a basic source of valuable and complex proteins and
pharmaceutical substances, Cenentech s manufacturing tech
nology promises significantly lower production costs than
those from other available sources of supply. Of course, some
of the proteins under development are substantially unavailable
using any technology.
While enjoying a technical advantage, Genentech obviously
does not have the -enormous financial reserves and marketing
muscle which are beneficial In the development, testing,
and marketing of new pharmaceutical products. The company
will have to develop and Implement a strategy which allows
It to grow successfully among an industry of giants.
(5)
I 15
III. CORPORATE STRATEGY: SUMMARY OF COALS AND OBJECTIVES
A. Genentech will seek to strengthen Its leadership position in
the new field of applied molecular biology by increasing the
breadth and depth of our scientific expertise and engineering
new products.
B. In 1979 Genentech will realize sales to the research/clinical
markets from its first commercial products: somatostatin in the
third quarter and thymosin in the fourth quarter.
C. In 1979 Genentech will build at its present location the
facilities for an integrated manufacturing facility to Include
fermentation, separation, purification, sterile bulk packaging
and quality control. The facility will be capable of handling
the existing fermentation requirement of 2,100 gma per year
capacity of pure sterile bulk product.
D. Genentech will undertake market research in early 1979 to
determine which additional significant Industrial and pharma
ceutical markets cau be served using the company s technology.
The company plans to pursue the early development of a large
number of new products to assure that adequate products are
available for licensing, technology sales, clinical trials,
and product sales.
For each new product developed Genentech will decide, based on
the appropriate criteria of market size, cost, and competitive
characteristics, whether each product should be:
1. Developed on a contract research basis;
2. Developed Independently and the process technology
old or licensed; or
3. Developed, manufactured and marketed Independently.
As a general philosophy, Genentech desires to use contract
research and technology sales licensing as a source of revenues
sufficient to cover Genen tech s overhead costs and support
the company s own product development effort.
Genentech s own product development .efforts will, be concentrated
on new products entering new markets (e.g., interferon, thymosin)
or on new products for entering existing markets (e.g., HGH,
Insulin). In these cases Genentech will most likely maintain
a technical or an economic competitive advantage, and the market
potential for new products Is large.
E. In 1979 a plan will be developed and Implemented to raise
additional equity capital to finance plant and facilities
expansion beyond the South San Francisco facility, to cover
the costs of clinically testing new drugs for FDA approval
and to build a marketing organization to sell the company s
products.
(6)
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3. DETERMINE LICENSING i
154
V. DEPARTMENTAL FLANS
A 1^79 PLAN FOR RESEARCH AND DEVELOPMENT
1. MISSION
A . To ra.-U.Ualn scientific leadership In die field of molecular
biolocy-
To acquire additional skills necessary to assure Cenentech
has sufficiently broad based technical capabilities Co main
tain its unique leadership position.
C. To develop microorganisms capable of producing new useful
products.
D. To foster a tradition of scientific excellence and professionalism.
2. COALS AND OBJECTIVES FOR 1979
A. To obtain bacterial expression in plantworthy microorganisms of:
1 Human growth hormone - July I, 1979
. 2. Thymosin - July 1, 1979 *
r" .,- , - -3. Interferon - January 1, 1980
4. One additional product - January 1, 1980
B. To engineer unique .tr.ins and plasmlds for efficient production
of protein products.
C To create a cloning vehicle and to obtain expression of desired
proteins in yeast and begin fanlUarization with other non-E. eoli
microorganisms by year end.
D. To develop cell culture and cellular immunology expertise.
E To build a functioning organizational framework for fostering
project management and scientific communication.
(10)
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V. DEPARTMENTAL PLANS
A. 1979 PLAN FOR RESEARCH AND DEVELOPMENT
1. MISSION
A. To apply newly developed rccombinant DNA and related tech
nologies for the creation of microorganisms capable of pro
ducing useful products.
B. To acquire additional skills necessary to assure Genentech
has sufficiently broad based technical capabilities to
maintain its unique leadership position.
C. To establish and maintain a tradition of scientific excellence
and professionalism.
2. GOALS AND OBJECTIVES FOR 1979/1980
A. To exploit synthetic DMA capability for:
1. Total synthesis of DNA coding for a-thymosin by June 1,
1979.
2. Manufacturing of restriction endonuclaase linkers (Pst,
Kpn) to facilitate the construction of new plasmids by
June 1, 1979. (For explanation, see Section D.)
3. Construction of probes for ACTH tn-RNA isolation and for
analysis of generate DNA by October 1, 1979.
B. To obtain bacterial expression in plantworthy microorganisms
of: -
1. Somatostatln by June 1, 1979.
2. Human growth hormone by July 1, 1979.
3. a-thymosin by August 1, 1979.
4. Interferes monoclonal antibodies by November 1, 1979.
5. Hepatitis surface antigen by January, 1980.
6. B-endorphin or other product by January 1, 1980 (in col
laboration with City of Hope National Medical Center).
7. Interferes by April, 1980. .
C. To develop a procedure for purifying the following proteins
from E. coll cell paste:
1. Insulin A chain and Insulin B chain by June 25. 1979.
2. Insulin BCA by October 1, 1979.
3. Somatostatin by October 1, 1979.
4. Human Growth Hormone by January 1, 1980.
5. a-thymosin by January 1, 1980.
158
D. To engineer unique bacterial strains and plasmids for
efficient production of proteins.
1. Plasmids pKB432 and pKBA33 were obtained by May 1, 1979.
These plasmids can be used to express any DNA sequence
I starting with the initiation triplit ATG-.
2. Derivatives of th plaBmids pKB432 and pKB433, which
can be used to obtain maximum expression of any DNA
sequence, will be completed by July 1, 1979.
E. To develop cellular biology expertise.
1. Biological assay for Interferon by May 1, 1979-
2. Develop hybridoma techniques to obtain monoclonal anti
bodies.
F. To expand protein chemistry expertise.
G. To stimulate basic research In areas related to commercially
applicable products.
1. In order to obtain a better understanding of organization
and function of eukaryotic genes and to Isolate DNA
sequences coding for valuable proteins, the following pro
ject is initiated: Cloning and analysis of general c DNA
coding for Insulin, glucagon, ACTH, human growth hormone,
HCS, IGF Land 2, relaxin, nerve growth factor, secretln,
gastrln, and g-endorphin. -Using cloned chromosomal .genes
as probes, specific c-DNA s from c-DNA colony banks can
be idenitified. The thymidine klnase gene from herpes
simplex virus- will be studied in more detail and developed
into a. eukaryotlc cloning vehicle. .
2. Expand and develop new DNA and UNA synthesis techniques
Including enzymatic and solid-support approaches.
3. Initiate studies aimed at the expression of valuable pro
ducts in yeast. This involves establishing yeast JDNA and
c-DNA clone banks, the identification and characterization
of a gene containing a strong promoter, and its use in the
construction of cloning vehicles that allow for the effi
cient expression of foreign DNA sequences in. yeast.
4. Initiate studies aimed at the development of a Bacillus
subtills cloning system for the excretion of products
into the medium.
5. Initiate a project to better understand stability and
solubility of fusion proteins in E. coll using A chain
insulin fusion proteins as a model.
159
6. Develop model pep tide substitutes nnd test various
candidates for "restriction" proteases for cleaving
peptides from leader peptides.
7. Develop a project to study glycosilation of proteins
in vitro.
H. To maintain a funcitonal organizational framework for
fostering project management and scientific communication.
160
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161
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< APPNDIX D
/
2238F/OII2
STANFORD SPEECH
SWANSON S REMARKS:
BEFORE I GET INTO MY REMARKS, I JUST WANT TO SAY THAT OVERALL/ I M
PLEASED TO HAVE HERB AS CO-FOUNDER OF GENENTECH. HERB AND I HAVE GOTTEN ALONG
WELL TOGETHER, WE AGREE ON MOST THINGS, BUT/ WATCHING HIM SPEAK TONIGHT
REMINDS ME THAT WE STILL HAVEN T STARTED WORK ON AN IMPORTANT PRODUCT THAT WAS
NEAR THE TOP OF MY LIST.
FOR REASONS THAT SHOULD BE CLEAR IF YOU LOOK AT MY-HJH HIGH FOREHEAD/ I
FELT WE SHOULD CONCENTRATE ON HAIR GROWTH HORMONE, HERB (FOR OBVIOUS REASONS)
NEVER SAW THAT AS A HIGH-PRIORITY PROBLEM,
SINCE HERB TALKED ABOUT THE FORMATION OF GENENTECH FROM A SCIENTIST S
PERSPECTIVE, I D LIKE TO LOOK AT IT NOW FROM A BUSINESSMAN S POINT OF VIEW,
WHAT WE DID
JUST EIGHT YEARS AGO, I WAS A PARTNER IN THE VENTURE CAPITAL FIRM OF
KLEINER & PERKINS/ INVESTING IN SMALL HIGH TECHNOLOGY COMPANIES. I WAS
WORKING ONLY AT THE BOARD LEVEL/ TO HELP THOSE COMPANIES DIRECT THEIR GROWTH
AND AVOID TYPICAL SMALL COMPANY MISTAKES. I WAS ALSO GATHERING VALUABLE
EXPERIENCE ABOUT THE RIGHT THINGS TO DO IN STARTING A COMPANY. HERB CALLS IT
MY POST-DOCTORATE TRAINING.
163
-2-
I FIRST BECAME INTRIGUED BY THE COMMERCIAL POTENTIAL OF RECOMBINANT DNA
TECHNOLOGY IN 1975, HAVING BEEN A CHEMISTRY MAJOR IN COLLEGE, I HAVE A LONG
STANDING INTEREST IN SCIENCE AND HAD READ A NUMBER OF IMPRESSIVE TECHNICAL
PAPERS BY DR. BOYER AND OTHERS.
IT SEEMED TO ME THAT GENETIC ENGINEERING WAS RIPE FOR COMMERCIAL
APPLICATION. BUT WHEN I TALKED WITH A NUMBER OF BUSINESSMEN AND SCIENTISTS,
NO ONE WAS WILLING TO AGREE.
THEY DIDN T SAY: "WELL, GEE, IF THIS ELEMENT OF THE TECHNOLOGY COULD JUST
BE SOLVED, IT COULD PRODUCE PRODUCTS." THEY D JUST SAY THAT COMMERCIALIZATION
WAS TEN TO TWENTY YEARS DOWN THE ROAD. WHEN I PRESSED THEM FOR REASONS, NO
ONE HAD ANY GOOD ANSWERS.
BY JANUARY OF 1976, I WAS REALLY IMPATIENT. DR. BOYER WAS CLEARLY AT THE
FOREFRONT OF THE RESEARCH AND I DECIDED TO GIVE HIM A CALL. WE D NEVER MET
BEFORE. HE TOLD ME HE WAS VERY BUSY HE WAS FRIENDLY, BUT BUSY. HE AGREED
TO GIVE ME 10 MINUTES OF HIS TIME ON A FRIDAY AFTERNOON.
WELL, THAT 10 MINUTES EXTENDED INTO THREE HOURS. . .AND AT LEAST AS MANY
BEERS. AND I CAN T BE SURE IN RETROSPECT WHETHER IT WAS MY PERSUASIVENESS,
HIS ENTHUSIASM, OR THE EFFECT OF THE BEERS, BUT WE AGREED, THAT NIGHT, TO
ESTABLISH A PARTNERSHIP TO INVESTIGATE THE COMMERCIAL FEASIBILITY OF
RECOMBINANT DNA TECHNOLOGY.
164
-3-
THERE S ALWAYS AN ELEMENT OF LUCK IN SUCH THINGS, AND I WAS LUCKY. JUST
/=&0<
PRIOR TO MY CONTACT WITH HERB/ HE HAD COLLABORATED ON A RESEARCH PROJECT WHICH
MCAMF WErlLAJQJ I AW? THE TECHNOLOGY TO TIC HEXT STEP ^PRODUCTION OF A USEFUL
A
PRODUCT.
LESS THAN THREE MONTHS LATER, IN APRIL 1976, WE FORMED GENENTECH,
FOR THOSE OF YOU WHO ARE UNFAMILIAR WITH GENETIC ENGINEERING, WHAT WE ARE
WORKING WITH IS DNA THE GENETIC MATERIAL OF LIVING CELLS WHICH IS PASSED ON
FROM ONE GENERATION TO THE NEXT, DNA CONTAINS THE MASTER PLAN OF LIFE,
GENES ARE JUST SEGMENTS OF DNA, THEY DETERMINE OUR PHYSICAL
CHARACTERISTICS BROWN EYES, BLOND HAIR, MALE, FEMALE AND MOST
IMPORTANTLY, THEY ARE RESPONSIBLE FOR GIVING OUR BODIES INSTRUCTIONS FOR
MAKING PROTEINS SUCH AS HORMONES AND ENZYMES WHICH ENABLE US TO FUNCTION
NORMALLY.
WHAT WE WERE PROPOSING TO DO FOR THE FIRST TIME WAS TAKE A HUMAN GENE;
SPLICE IT INTO THE DNA OF A COMMON BACTERIA; AND TO DO THIS IN SUCH A WAY THAT
THE BACTERIA ACCEPTED THE DNA AS ITS OWN, FOLLOWED THE INSTRUCTIONS ON THE
GENE, AND PRODUCED THE DESIRED PROTEIN.
OUR FIRST ORDER OF BUSINESS AT GENENTECH WAS TO PROVE THAT IT WAS
POSSIBLE AND COMMERCIALLY FEASIBLE TO GET A BACTERIA TO MAKE A HUMAN PROTEIN.
NOBODY HAD DONE IT BEFORE,
165
WE STARTED OUT CAUTIOUSLY, WE RENTED EVERYTHING OFFICE SPACE/
FURNITURE/ EVEN A PART-TIME SECRETARY. WE HAD NO ASSETS, THERE WAS JUST HERB
AND ME AND HERB ALSO HAD OBLIGATIONS AS A PROFESSOR AT THE UNIVERSITY OF
CALIFORNIA AT SAN FRANCISCO. KLEINER & PERKINS AGREED TO PROVIDE THE FIRST
$100/000 IN VENTURE CAPITAL FUNDING/ WHICH LASTED US NINE MONTHS. TOM AND
EUGENE ARE IN THE AUDIENCE. I WANT TO PUBLICLY THANK TEEM FOR TWS*R FAITH.
THIS WAS THE FIRST TIME THEIR FIRM INTENT I ALLY FUNDED BASIC RESEARCH.
WE CONTRACTED WITH UNIVERSITIES TO DO THE EARLY RESEARCH, IT WAS BASIC
RESEARCH THAT FIT WELL INTO A UNIVERSITY ENVIRONMENT AND WAS A GOOD EXAMPLE OF
THE VALUABLE INTERACTION BETWEEN BUSINESS AND UNIVERSITIES. THE EXCLUSIVE
MARKETING RIGHTS WE RECEIVED ARE NOW GENERATING ROYALTY INCOME TO THE
UNIVERSITIES.
WE KNEW THAT THE ROAD TO SUCCESS WOULD NOT BE EASY/ BUT THERE WAS ONE
THING WE DID IN THOSE DAYS WHICH WAS EASY. WHILE DISCUSSING WHAT TO CALL THE
ALSO
COMPANY/ I SUGGESTED "HERfiOB," I CAN SEE YOU AGREE WITH HERB. HEftTHOUGHT
THAT WAS TERRIBLE. IN ONE OF THE FLASHES OF BRILLIANCE FOR WHICH HE IS
FAMOUS/ HE IMMEDIATELY CAME UP WITH GENENTECH, . .SHORT FOR GENETIC ENGINEERING
TECHNOLOGY, IT SEEMED LIKE A TERRIFIC NAME/ AND THE ENTIRE PROCESS TOOK MAYBE
10 SECONDS.
166
-5-
ONE YEAR AFTER OUR FOUNDING/ IN 1977, GENENTECH WAS ABLE TO ANNOUNCE THE
SUCCESSFUL BACTERIAL PRODUCTION OF THE HUMAN BRAIN HORMONE, SOMATOSTATIN.
THIS WAS A SIGNIFICANT BREAKTHROUGH THE FIRST USEFUL PRODUCT MADE BY
GENETIC ENGINEERING,
WE WERE ACTUALLY AHEAD OF SCHEDULE, FROM START TO FINISH/ THE RESEARCH
TOOK JUST SEVEN MONTHS, -THAT CAUGHT MANY BY SURPRISE ESPECIALLY THE
VENTURE CAPITALISTS WHO WANTED AN OPPORTUNITY TO INVEST MORE MONEY AT A LOW
PRICE.
IN RECOGNITION OF THIS ACCOMPLISHMENT/ PHILIP HANDLER/ THE PRESIDENT OF
THE NATIONAL ACADEMY OF SCIENCES/ HAILED THE DEVELOPMENT AS "A SCIENTIFIC
TRIUMPH OF THE FIRST ORDER," AND STANFORD S PAUL BERG/ WHO WOULD LATER BECOME
A NOBEL LAUREATE/ CALLED IT "ASTONISHING,"
NOW THAT WE HAD PROVEN THE TECHNOLOGY/ WE FELT COMFORTABLE INVESTING IN
PEOPLE AND FACILITIES, BUT FINDING THE RIGHT PEOPLE WAS DIFFICULT, AT THE
TIME/ MOST MOLECULAR BIOLOGISTS ENGAGED IN RECOMBINANT DNA RESEARCH WOULDN T
EVEN CONSIDER WORKING FOR INDUSTRY, THEY WANTED A PROFESSORSHIP AT
STANFORD.,, OR EVEN ONE AT A LESSOR-KNOWN UNIVERSITY,
OUR FIRST SCIENTIST WAS FROM HOLLAND, AS A POST-DOC/ HE HAD DONE MJCH OF
THE WORK IN HERB BOYER S LAB, AND THEN RETURNED HOME. HERB AND I HAD TO GO TO
HOLLAND AND BRING HIM BACK, HERB HEYNEKER is HERE TONIGHT/ ALONG WITH OTHER
GENENTECH SCIENTISTS WHO JOINED us EARLY ON.
167
-6-
OF COURSE/ TODAY IT S CONSIDERABLY EASIER TO HIRE SCIENTISTS AND OTHER
PROFESSIONALS. WE GET ROUGHLY 500 UNSOLICITED RESUMES A MONTH,
AFTER OUR SUCCESS WITH SOMATOSTATIN, WE NEXT TACKLED THE PRODUCTION OF
HUMAN INSULIN, AGAIN ONE YEAR LATER, IN 1978, GENENTECH ANNOUNCED THAT
MICROORGANISMS HAD BEEN ENGINEERED TO PRODUCE THE PRODUCT, FOUR YEARS LATER,
IN THE FALL OF 1982, HUMAN INSULIN BECAME THE FIRST PHARMACEUTICAL PRODUCT OF
RECOMBINANT DNA TECHNOLOGY TO RECEIVE MARKETING CLEARANCE FROM THE FDA. TODAY
IT IS BEING MANUFACTURED AND MARKETED BY ELI LILLY, UNDER CONTRACT FROM
GENENTECH.
FOUR YEARS FROM DISCOVERY TO MARKET IS LIGHTNING SPEED FOR A
PHARMACEUTICAL, BUT COMPARED TO OTHER HIGH TECHNOLOGY PRODUCTS, IT S A VERY
LONG TIME. BECAUSE OF THIS LEAD TIME FACTOR IN OUR INDUSTRY, GENENTECH HAS
HAD TO ADOPT SOME UNIQUE STRATEGIES ... A FEW OF WHICH I LL SHARE WITH YOU
LATER.
SINCE OUR FOUNDING, THE INDUSTRY HAS ADVANCED RAPIDLY. TODAY, A VARIETY
OF GENENTECH PRODUCTS ARE NOW MOVING STEADILY TOWARD THE MARKETPLACE. To NAME
A FEW; HUMAN GROWTH HORMONE, TO ENABLE DWARFS TO GROW TO NORMAL HEIGHT.
TISSUE-TYPE PLASMINOGEN ACTIVATOR, TO DISSOLVE BLOOD CLOTS CAUSING HEART
ATTACKS AND OTHER LIFE-TREATENING CONDITIONS. GAMMA INTERFERON, WHICH WE
BELIEVE TO BE AN EFFECTIVE AGENT AGAINST A NUMBER OF CANCERS AND VIRAL
DISEASES.
ALL TOGETHER WE VE ALREADY ANNOUNCED FOURTEEN GENENTECH PRODUCTS, WHICH
ARE IN VARIOUS STAGES OF DEVELOPMENT FOR USE AS HJMAN PHARMACEUTICALS, ANIMAL
HEALTH PRODUCTS AND INDUSTRIAL ENZYMES, MANY OTHER PRODUCTS ARE UNDER
168
-7-
DEVELOPMENT, NONE OF THESE PRODUCTS WOULD HAVE BEEN POSSIBLE WITHOUT
RECOMBINANT DNA TECHNOLOGY,
WE HAVE GROWN TO 240/000 SQUARE FEET OF FACILITIES, INCLUDING A MAJOR NEW
72/000 SQUARE FOOT MANUFACTURING PLANT ~ AND WE ARE MANUFACTURING CLINICAL
GRADE PRODUCT ON A THREE-SHIFT BASIS. WE HAVE MORE THAN 460 EMPLOYEES ONE
IN FIVE HAS A PH.D, WE ENDED 1982 WITH OVER $100 MILLION IN ASSETS/ INCLUDING
CASH IN EXCESS OF $35 MILLION.
TO GET TO THIS POINT/ WE VE FACED SOME UNUSUAL BUSINESS CHALLENGES DUE TO
THE NATURE OF OUR TECHNOLOGY AND PRODUCTS. SINCE THESE CHALLENGES ARE
DIFFERENT FROM THOSE MANY OF YOU HAVE EXPERIENCED IN OTHER BUSINESSES/ I
THOUGHT THE STRATEGIES WE HAVE ADOPTED WOULD BE OF INTEREST TO YOU.
FOCUSED BUSINESS STRATEGY
PERHAPS MOST IMPORTANT is OUR FOCUSED BUSINESS APPROACH.
BIOTECHNOLOGY OFFERS PROMISING OPPORTUNITIES IN so MANY FIELDS THAT IT is
EASY TO BE LIKE A KID IN THE CANDY STORE ~ DOING A LITTLE OF THIS AND A
LITTLE OF THAT. BUT AS DAVE PACKARD REMINDS ME IN OUR BOARD MEETINGS/ NOT
MANY COMPANIES RUN INTO PROBLEMS BECAUSE OF STARVATION. IT S THE INDIGESTION
THAT GETS TO THEM. WE HAVE TAKEN HIS ADVICE.
169
-8-
BRINGING A PRODUCT FROM THE LABORATORY TO THE MARKETPLACE TAKES ENORMOUS
ENERGY/ AND CONCENTRATION OF BOTH HUMAN AND CAPITAL RESOURCES. WE RECOGNIZED
EARLY ON THAT IT IS IMPORTANT TO FOCUS ON DOING A FEW THINGS WELL FIRST
DEVELOPING PRODUCTS IN ONE AREA BEFORE EXPANDING INTO ANOTHER,
INITIALLY/ GENENTECH RESOURCES WERE CHANNELED INTO HEALTH CARE PRODUCTS
ESPECIALLY PROTEINS WITH IMPORTANT THERAPEUTIC POTENTIAL. THESE PRODUCTS
WERE CHOSEN FOR THEIR SCIENTIFIC FEASIBILITY ... POTENTIALLY LARGE MARKET SIZE
AND HIGH PROFIT MARGINS . . . OPPORTUNITY FOR EARLY MARKET ENTRY ... AND CLEAR
COMPETITIVE EDGE.
HOWEVER/ EVEN WITHIN PHARMACEUTICALS/ WE HAD TO DECIDE WHICH AREAS WE
WOULD BE IN/ AND WHICH AREAS WE WOULD NOT BE IN, (FOR EXAMPLE/ WE CHOSE NOT
TO BE IN THE DIAGNOSTICS BUSINESS.) WE FOCUSED ON ETHICAL DRUGS.
-
WITHIN THE ETHICAL DRUGS CATEGORY/ WE CONCENTRATED EVEN FURTHER ON
PRODUCTS PRESCRIBED BY MEDICAL SPECIALISTS. EARLY ON WE FELT WE COULDN T
SERVE WELL THE MORE THAN 400/000 DOCTORS PRACTICING IN THE U.S. BUT SPECIALIST
MARKETS ARE WITHIN OUR REACH. AND BECAUSE MOST SPECIALISTS ARE BASED AT THE
ROUGHLY 900 MAJOR HOSPITALS NATIONWIDE/ THEY CAN BE REACHED EFFICIENTLY. FOR
EXAMPLE, A SALEPERSON COULD VISIT A HOSPITAL, SEE AN ENDOCRINOLOGIST ABOUT
HUMAN GROWTH HORMONE, THEN WALK UPSTAIRS TO SEE A CARDIOLOGIST ABOUT
TISSUE-TYPE PLASMINOGEN ACTIVATOR, AND GO DOWN THE HALL TO SEE AN INTERNIST
ABOUT GAMMA INTERFERON.
170
-9-
ONLY A SMALL SALES FORCE is NEEDED/ AND GENENTECH is NOT AT A
DISADVANTAGE COMPARED WITH A PHARMACEUTICAL GIANT.
TO MARKET OUR PRODUCTS OUTSIDE OF THE U.S./ WE HAVE ARRANGED MARKETING
AGREEMENTS WITH FOREIGN PHARMACEUTICAL COMPANIES INCLUDING SEVERAL JAPANESE
COMPANIES, BUT/ WE HAVE NOT LICENSED OUR TECHNOLOGY TO THEM, WHILE THESE
COMPANIES WILL CONDUCT THE CLINICAL TRIALS IN PREPARATION FOR MARKETING IN
THEIR AREAS/ WE HAVE RETAINED MANUFACTURING RIGHTS AND SELL THE PRODUCTS TO
ACT PARTNERS IN BULK FORM,
BESIDES PHARMACEUTICALS/ OUR PRODUCT DEVELOPMENT CATEGORIES HAVE RECENTLY
BROADENED TO INCLUDE ANIMAL HEALTH PRODUCTS A NATURAL EXTENSION OF THE
COMPANY S EXPERTISE IN HUMAN PHARMACEUTICALS AND INDUSTRIAL ENZYMES,
FINANCIAL STRATEGY
QF COURSE 7 A LITTLE INNOVATION IN THE FINANCIAL AREA/\HELPS, HOW ELSE
COULD GENENTECH MANAGE FOUR YEARS OF PROFITABILITY/ OVER 50 PERCENT ANNUAL
GROWTH AND 82 REVENUES OF $32.6 MILLION WITHOUT SELLING A SINGLE PRODUCT TO A
DOCTOR OR HIS PATIENTS?
SERIOUSLY/ ENTRY INTO THE ETHICAL DRUG BUSINESS TAKES SUBSTANTIAL
FINANCIAL RESOURCES. TYPICALLY/ A NEW PHARMACEUTICAL REQUIRES $50 MILLION AND
7 YEARS OF RESEARCH AND HUMAN TESTING. ON THE OTHER HAND/ ONCE WE ARE SELLING
171
-10-
A PRODUCT/ WE HAVE CROSSED MANY HIGH BARRIERS; AND OUR COMPETITION MIST COVER
THE SAME GROUND TO CATCH UP .
GENENTECH S STRATEGY HAS BEEN TO INTENTIONALLY OPERATE JUST OVER
BREAK-EVEN DURING OUR NECESSARILY LENGTHY PRODUCT DEVELOPMENT PERIOD, RATHER
THAN USE EQUITY CAPITAL TO FUND OUR R8D (WHICH WAS $25 MILLION LAST YEAR), WE
HAVE FINANCED OUR DAY-TO-DAY OPERATING EXPENSES PRIMARILY WITH OPERATING
REVENUES FROM COLLABORATIVE RESEARCH/ LICENSING FEES AND PRODUCT SALES TO OUR
CORPORATE PARTNERS FOR CLINICAL USE,
WE STILL HAVE REQUIRED LOTS OF CASH, SINCE ITS FOUNDING/ GENENTECH HAS
RAISED $155 MILLION $12 MILLION FROM VENTURE CAPITAL, 7 IN DEBT FINANCING,
36 FROM OUR PUBLIC OFFERING/ 45 FROM PRIVATE PLACEMENTS WITH CORPORATE
INVESTORS/ AND 55 FROM A PRIVATE RESEARCH AND DEVELOPMENT LIMITED
PARTNERSHIP,
WE HAD TWO MOTIVES FOR GOING PUBLIC WHEN WE DID, FIRST: WE KNEW WE WOULD
NEED MORE MONEY THAN VENTURE CAPITAL COULD SUPPLY ~ AND LONG BEFORE WE HAD
PRODUCTS TO SELL. SECOND: GENENTECH WAS SETTING STANDARDS IN THE INDUSTRY;
AND WE WANTED TO ESTABLISH A RECORD OF BUSINESS ACCOMPLISHMENTS THAT OTHER
BIOTECHNOLOGY COMPANIES WOULD HAVE TO MATCH.
IN PRIVATE EQUITY PLACEMENTS, WE HAVE ACTIVELY SOUGHT CORPORATE
SHAREHOLDERS WHO COULD CONTRIBUTE MORE THAN MONEY TO OUR COMPANY. THEY
172
-II-
INCUUDE: JAPANESE FINANCIAL INSTITUTIONS, WHO ARE HELPING OUR JAPANESE
SUBSIDIARY GAIN A FOOTHOLD IN JAPAN (JAPAN IS THE SECOND LARGEST
PHARMACEUTICAL MARKET IN THE WORLD); CORNING GLASS WORKS/ OUR PARTNER IN
GENENCOR/ A JOINT COMPANY FOR THE PRODUCTION OF INDUSTRIAL ENZYMES; FLUOR/
WHOSE SUBSIDIARY SPECIALIZING IN PHARMACEUTICAL PLANT CONSTRUCTION HELPED US
DESIGN AND BUILD OUR NEW MANUFACTURING FACILITY; ALFA-lAVAL/ A LEADING
SUPPLIER OF PURIFICATION AND EXTRACTION EQUIPMENT/ VALUABLE FOR PROCESS
SCALE-UP; ANDJJJBRIZDL, WITH EXPERTISE IN SPECIALTY CHEMICALS,
A MAJOR PIECE OF OUR FINANCING HAS COME FROM THE FORMATION OF PRIVATE R&D
LIMITED PARTNERSHIPS/ WHICH ARE AN IDEAL VEHICLE FOR FUNDING THE HIGH COSTS OF
HJMAN CLINICAL TESTING, UNLIKE OTHER TYPES OF R8D PARTNERSHIPS/ CURS FINANCE
PRODUCTS THAT ARE ESSENTIALLY DEVELOPED/ BUT MUST NOW FACE THE RIGORS AND
EXPENSE OF HUMAN TESTING AND REGULATORY APPROVAL, THEY ARE PART OF THE
MAINSTREAM OF OUR COMPANY,
THE PARTNERSHIPS ARE GOOD FOR BOTH SIDES, THEY PROVIDE A TAX WRITE-OFF
AND EXCELLENT POTENTIAL RETURN FOR INVESTORS, AND THEY ALLOW GENENTECH TO
RAISE THE FUNDS REQUIRED FOR CLINICAL TESTING WHILE RETAINING CONTROL OVER THE
PRODUCT S MANUFACTURING AND MARKETING, LIKE THE COLT 45 WAS TO THE OLD WEST/
THEY ARE A GREAT EQUALIZER WHEN COMPETING WITH LARGE/ WELL-FINANCED
PHARMACEUTICAL COMPANIES.
173
-12-
PEOPLE ORIENTATION
WHEN YOU COME RIGHT DOWN TO IT, THOUGH, INVESTMENT IN PEOPLE is WHAT HAS
MADE THE DIFFERENCE AT GENENTECH. WE VE WORKED HARD AT A STRATEGY TO MAKE
SURE OUR EMPLOYEES ENJOY COMING TO WORK EVERY DAY AND THAT THEY PARTICIPATE IN
THE SUCCESS OF THE COMPANY, IT HAS PAID OFF ~ NOT ONLY IN TERMS OF OUR
BUSINESS ACHIEVEMENTS BUT ALSO IN TERMS OF EMPLOYEE MORAL, OUR TURNOVER RATE
IS UNCHARACTERISTICALLY LOW ABOUT 1/2 OF ONE PERCENT PER MONTH,
EVERYONE IN THE COMPANY HAS AN OPPORTUNITY TO OWN SHARES OF GENENTECH s
STOCK MOST OF THEM ARE SHAREHOLDERS, IT IS OUR BELIEF THAT THOSE WHO ARE
MAKING THINGS HAPPEN SHOULD SHARE SIGNIFICANTLY AS OUR BUSINESS GROWS,
WE VE GONE AFTER THE BEST FOLKS WE COULD FIND ANYWHERE ~ AND HAVE NOT
BEEN LIMITED BY GEOGRAPHIC LOCATION, WE VE STAFFED LEAN AND HAVE MAINTAINED A
TIGHT FOCUS ON DAY-TO-DAY OPERATIONS, WE VE INVOLVED A BROAD-BASED MIX OF
SCIENTISTS AND BUSINESS PEOPLE IN OUR PLANNING AND DECISION-MAKING, (WE VE
EVEN HIRED A FEW STANFORD BUSINESS SCHOOL GRADUATES,)
GENENTECH s RESEARCH ORGANIZATION is AMONG THE LARGEST IN THE WORLD
DEDICATED TO RECOMBINANT DNA TECHNOLOGY. WITH SOME 150 SCIENTISTS/ IT IS ALSO
ONE OF THE MORE ENTREPRENEURIAL GROUPS OF PEOPLE YOU ARE LIKELY TO COME
ACROSS. WHAT ABOUT THE MANAGEMENT OF SUCH A CREW? IT S EASY. WE DON T WORK
ON ANY PROJECTS WE CAN T GET SOMEONE EXCITED ABOUT. (SOMETIMES IT TAKES
LONGER THAN OTHERS, BUT WE NEVER CHANGE THAT RULE.)
174
-13-
WHAT ABOUT TOO MUCH EXCITEMENT? ALMOST 70% OF GENENTECH S RESOURCES ARE
FOCUSED ON OUR TOP FIVE PROJECTS, IMPORTANT BUSINESS GOALS ARE SET AND
IMPLEMENTED BY PROJECT TEAMS THAT CUT ACROSS DEPARTMENTS.
WE FEEL IT IS IMPORTANT THAT ONCE YOU VE DEFINED "STRETCH" BUSINESS GOALS
YOU ALLOW A LOOSENESS IN THE ORGANIZATION THAT ENABLES YOU TO ACHIEVE THOSE
GOALS, THERE HAS TO BE ENOUGH FREEDOM AND TIME FOR PEOPLE TO FOLLOW THEIR
NOSE ON NEW IDEAS. AND MANAGEMENT NEEDS TO "WALK AROUND" AND PAY ATTENTION TO
WHAT S MOTIVATING EMPLOYEES,
IN OUR BUSINESS, PUBLISHING RESEARCH IS IMPORTANT AFTER THE
APPROPRIATE FILING OF PATENTS, SO FAR/ 130 RESEARCH PAPERS ON OUR WORK HAVE
BEEN PUBLISHED IN SCIENTIFIC JOURNALS. I KNOW THIS IS UNUSUAL FOR A COMPANY;
BUT WE BELIEVE WE HAVE MORE TO GAIN FROM OUR INTERACTION WITH THE WORLD S
SCIENTIFIC COMMUNITY THAN WE STAND TO LOSE BY ALLOWING THIS INFORMATION TO
FALL INTO THE HANDS OF OUR COMPETITION, SUCH INTERACTION ALSO IS CRITICAL TO
ATTRACTING AND KEEPING THE VERY BEST SCIENTIFIC TALENT.
GENENTECH is NOW WELL ON THE WAY TO BECOMING A MAJOR CORPORATION THAT
MAKES AND SELLS SIGNIFICANT PRODUCTS,
WHAT WE ARE DOING NOW AS A COMPANY AND AS AN INDUSTRY is ONLY THE
TIP OF THE ICEBERG. AS THE INTERNATIONAL HERALD TRIBUNE SAID RECENTLY/
"BIOTECHNOLOGY MAY BE TO THE 1980S AND BEYOND WHAT COMPUTERS HAVE BEEN SINCE
THE 1960S THE BASIS OF A TECHNOLOGY THAT WILL CHANGE PEOPLE S LIVES."
175
-M-
I AGREE. WE ARE CREATING PRODUCTS THAT WOULD/yBE COMMERCIALLY IMPOOOIDkE
WITHOUT RECOMBINANT DNA TECHNOLOGY. AS FAR-REACHING AS IT MAY SEEM/ PRODUCING
THE RARE AND COMPLEX PROTEINS THAT ARE A NATURAL PART OF THE BODY S SYSTEM FOR
FIGHTING DISEASE AND MAINTAINING GOOD HEALTH IS ONLY THE BEGINNING. PRODUCTS
EMANATING FROM BIOTECHNOLOGY WILL ULTIMATELY CHANGE FOREVER THE WAY WE TREAT
DISEASES ... THE WAY WE CARE FOR LIVESTOCK AND CROPS ... THE WAY WE PROCESS
FOOD AND CHEMICALS.
IN THE DECADES AHEAD, VIRTUALLY EVERY ASPECT OF OUR LIVES WILL BE TOUCHED
BY BIOTECHNOLOGY AND IN WAYS WE CANNOT EVEN CONCEIVE OF TODAY.
THANK YOU FOR HONORING GENENTECH S PART IN HELPING CREATE THIS EXCITING
NEW FIELD.
JJJJJI
ffrrrr
Genentech, Inc.
176
CONTACT:
APPENDIX E
Suzanne McKean, (415) 872-7071
or
Shirley Clayton, (415) 872-7001
FOR IMMEDIATE RELEASE
160 Point San Bruno Boulevard
joulh San Francisco, CA 94080
415) 952-1000
rWX: 9103717168
KING OF SWEDEN PRESENTS GENENTECH PRESIDENT
WITH MEMBERSHIP IN ROYAL SWEDISH ACADEMY
SOUTH SAN FRANCISCO, CA, March 13, 1984 -- His Majesty King Carl XVI
Gustaf of Sweden today presented Genentech president Robert A. Swanson with a
certificate of membership in the prestigious Royal Swedish Academy of
Engineering Sciences. The presentation took place during a visit to Genentech
by the Royal Technology Mission to the U.S. West Coast.
The Royal Swedish Academy of Engineering Sciences is a Swedish national
institution established for the purposes of promoting engineering and
technical sciences and recognizing outstanding contributions to society. The
membership of the Swedish Academy includes prominent engineers, scientists,
economists, and leaders from both the private and public sectors.
Commenting on his nomination to the Academy, Mr. Swanson said: "This is
a great honor for me, both personally and professionally. My ancestry is
Swedish. In addition, Genentech has developed a number of strong
relationships with major Swedish companies and has good Swedish investor
support. I look forward to building our affiliations in Sweden."
Genentech, Inc. is a leading biotechnology company. It is focused on
the development, manufacture and marketing of recombinant DNA products,
principally for human and animal health.
-end-
APPENDIX F
DETROIT S NEW STRATEGY: GO ON THE DEFENSIVE
PAGE 86
APRIL 14. 1986
A McGHAW-HILL PUBLICATION
Wall Street loves Genentech. The reason: It s on the way
to becoming a major pharmaceutical company
PAGE 68
CEO ROBERTA. SWANSON
178 APPENDIX G
Speech by
Robert A. Swanson, Chairman
Genentech, Inc.
At the Carolinas Chapter of the Association for Corporate Growth
Charlotte, N.C.
January 31, 1996
Thank you. It is a pleasure to be with you this evening. To discuss
Venture Capital.
This year marks the 20th anniversary of the founding of Genentech.
Those two decades have been years of extraordinary progress.
The most recent statistics available show that the biotech industry as a
whole has sales income of about $10 billion, an increase of nearly 800 per cent in
1 years. The industry now encompasses more than 1 ,300 companies with
some 108,000 employees.
Twenty years ago, this industry did not exist.
As the figures for the biotech industry indicate, recombinant DMA
technology is now an accepted part of medicine, agriculture, and other fields, but
people sometimes forget that it was not always so. During the 70s the future of
this technology was very much in doubt. I d like to take just a few minutes to
sketch the environment back then, because it is pertinent to the story of
Genentech and its venture capital backers.
In 1973 Herbert W. Boyer, of the University of California at San Francisco,
and Stanley N. Cohen, of Stanford University, demonstrated a method for
replicating a foreign gene by inserting it into a micro-organism called E. coli - a
technique that came to be called recombinant DMA, gene-splicing, or simply
cloning.
Almost at once, some people, including some scientists, expressed
concern about the potential hazards of this procedure. A novel, The Andromeda
Strain, which was made into a hit movie, added to these fears. Things got so bad
that the City Council of Cambridge, Massachusetts, where both Harvard
University, and my alma mater, MIT, are located prohibited DMA experiments
within the city limits. The New York Times denounced the technology in an
editorial.
The entire U.S. scientific community decided on a moratorium for all
experiments while the matter was studied. After three years, in 1976, guidelines
were drawn up by the National Institute of Health to ensure that recombinant
179
DMA work would be conducted under the safest possible conditions. Those
guidelines have been followed and there has never been a serious mishap
involving recombinant DMA.
Let s go back one year to 1975. I was working with a venture capital firm
called Kleiner & Perkins. I had been following the developments in this field and
had read some impressive technical papers by Dr. Boyer and others. It seemed
to me that this new technology was ripe for commercialization.
But as I talked with a number of scientists and businessmen no one was
willing to agree with me. They all said it would be years - a decade or more -
before commercial products would emerge. When I pressed them for reasons
why, no one had any good answers.
By January of 1976, 1 was really impatient. Dr. Boyer was clearly at the
forefront of the research -- and I decided to give him a call. It was what a
salesman would term a "cold call." We d never met before. He told me he was
very busy - he was friendly, but busy. I persisted and finally he agreed to give
me 10 minutes of his time on a Friday afternoon.
Well, that 10 minutes extended into three hours. . . and at least as many
beers. And I can t be sure in retrospect whether it was my persuasiveness, his
enthusiasm, or the effect of the beers, but we agreed, that night, to establish a
partnership to investigate the commercial feasibility of recombinant DMA
technology.
There s always an element of luck in such things. And I was lucky. Just
prior to my contact with Herb, he had collaborated on a research project from
which the technology might be taken a further step -- to production of a useful
product.
Less than three months later, in April 1 976, Herb and I each put up $500
and formed Genentech.
What we were proposing to do for the first time was take a human gene;
splice it into the DMA of a common bacteria; and to do this in such a way that the
bacteria accepted the DMA as its own, followed the instructions on the gene, and
produced the desired protein.
Our first order of business at Genentech was to prove that it was possible
and commercially feasible to get a bacteria to make a human protein. Nobody
had done it before.
We started out cautiously. We rented everything -- office space, furniture,
even a part-time secretary. We had no assets. There was just Herb and me --
and Herb also had obligations as a professor at the University of California at
San Francisco. Kleiner & Perkins agreed to provide the first $100,000 in venture
capital funding, which lasted us nine months. As Tom Perkins would say later
on, this was the first time their firm intentionally funded basic research.
180
We contracted with universities to do the early research. It was basic
research that fit well into a university environment and is a good example of the
valuable interaction between business and universities. The exclusive marketing
rights we received have now generated royalty income to the universities of over
$160 million.
We knew that the road to success would not be easy, but there was one
thing we did in those days which was easy. While discussing what to call the
company, I suggested "HerBob." I can see by your reaction you agree with Herb.
He also thought it was a terrible idea. In one of the flashes of brilliance for which
he is famous, he immediately came up with Genentech . . . short for genetic
engineering technology. It seemed like a terrific name, and the entire process
took maybe 10 seconds.
One year after our founding, in 1977, Genentech was able to announce
the successful bacterial production of the human brain hormone, somatostatin.
This was a significant breakthrough -- the first useful product made by genetic
engineering.
We were actually ahead of schedule. From start to finish, the research
took just seven months. That caught many by surprise - especially the venture
capitalists who wanted an opportunity to invest more money at a low price.
In recognition of this accomplishment, Philip Handler, the president of the
National Academy of Sciences, hailed the development as "a scientific triumph of
the first order." And Stanford s Paul Berg, who would later become a Nobel
Laureate, called it "astonishing."
Now that we had proven the technology, we felt comfortable investing in
people and facilities. But finding the right people was difficult. At the time, most
molecular biologists wouldn t even consider working for industry. They wanted
professorships at universities.
Our first scientist was from Holland. As a post-doc, he had done much of
the work in Herb Boyer s lab, and then returned home. Herb and I had to go to
Holland and bring him back.
Of course, today it s considerably easier to hire scientists and other
professionals. We get roughly 500 unsolicited resumes a month.
After our success with somatostatin, we next tackled the production of
human insulin. Again one year later, in 1978, Genentech announced that
microorganisms had been engineered to produce the product. Four years later,
in the fall of 1982, human insulin became the first pharmaceutical product of
recombinant DNA technology to receive marketing clearance from the FDA.
Today Humulin, is marketed by Eli Lilly & Company under contract from
Genentech, and is the product of choice for treating diabeties.
181
Our company was only six years old, and the first of its products was
benefiting patients, years earlier than the skeptics had thought possible.
Today 10 of the biotech pharmaceutical products approved by the FDA
are products of Genentech research. We manufacture and market 5 of those
products and receive royalties on the other 5. Last year, total annual sales of
products generated by Genentech research reached $3 Billion.
At present we market, under our own name:
Activase R , tissue plasminogen activator used in treating heart attacks
and potentially helpful in treating stroke as well;
ProtropinR, and Nutropin^, human growth hormones, for treating
children who would otherwise be dwarfs;
PulmozymeR, for the management of cystic fibrosis;
ActimmuneR, gamma interferon, used to treat patients with chronic
granulomatous disease.
I should point out that the four years that it took to get our first product to
market might seem like a long time, compared with some other high-tech
products, but in the pharmaceutical field, it s lightning speed. Because of this
long lead time Genentech had to adopt some unique strategies.
Focused Strategy
Perhaps most important was our focused business approach.
Biotechnology offered such promising opportunities in so many fields that
it was easy to be like a kid in the candy store -- doing a little of this and a little of
that. But as Dave Packard reminded me in our board meetings, not many
companies run into problems because of starvation. It s the indigestion that gets
to them. We took his advice, and focused on doing a few things well -- first
developing products in one area before expanding into another.
Genentech resources were channeled into health care products --
especially proteins with important therapeutic potential. These products were
carefully chosen for their scientific feasibility . . . potentially large market size and
high profit margins . . . opportunity for early market entry . . . and clear
competitive edge.
However, even within Pharmaceuticals, we had to decide which areas we
WOULD be in, and which areas we would NOT be in. (For example, we chose
not to be in the diagnostics business.) We focused on ethical drugs.
Within the ethical drugs category, we concentrated even further on
products prescribed by medical specialists. Early on we felt we couldn t serve
182
well the more than 400,000 doctors practicing in the U.S. but specialist markets
were within our reach. And because most specialists are based at the roughly
900 major hospitals nationwide, they could be reached efficiently. For example,-
a salesperson could visit a hospital, see an endocrinologist about human growth
hormone, then walk upstairs to see a cardiologist about TPA, and go down the
hall to see an internist about gamma interferon.
Only a small sales force was needed, and Genentech was not at a
disadvantage competing with a pharmaceutical giant.
Financial Strategy
What about our financial strategy?
A little innovation in the financial area always helps. How else could we
have managed profitability in the early years with R&D expenses running in the
$25-30 million range, and even before we were able to sell a single product to a
doctor or his patients?
Seriously, entry into the ethical drug business takes substantial financial
resources. Typically, a new pharmaceutical requires over $150 million and 7 -10
years of research and human testing. How does a company eat while waiting for
that ship to come in?
Genentech s strategy was to intentionally operate just over break-even
during our necessarily lengthy product development period. Rather than use
equity capital to fund our R&D, we financed our day-to-day operating expenses
primarily with operating revenues from collaborative research, licensing fees, and
product sales to our corporate partners for their clinical use. We endeavored to
license our products in Europe and Japan while maintaining rights to market in
the U.S.
We still required lots of cash. Since its founding, Genentech has raised
over $1.1 billion -- $600 million from venture capital, private placements with
corporate investors, from public offerings of stock and convertible debt, and from
research and development limited partnerships. The last $500 million came from
our recent relationship with Hoffman LaRoche.
The agreement, with Roche, gives Roche a 60+% ownership of
Genentech and the right to buy the rest at prices increasing to $82 per share in
1 999. It also provides for the independent operation of Genentech until such
time as they buy 100%, if they do?
We established this unique relationship with Roche to have the financial
stability that would allow us to make a long term commitment to research, which
in today s world is often at odds with short term investment focus. Last year
Genentech spent over $360 million on research and development -- 40% of our
total revenue and 3 times the industry average.
183
This investment has unleashed a new product pipeline that is the envy of
the industry. In clinical trials marching toward approval we have:
Thrombopoietin - a platelet growth factor
IIB/III Antagonist - an anti clotting agent
Anti-lgE Antibody - for allergies and asthma
Nerve Growth Factor - for peripheral neuropathies
IGF-I - for treating diabetes
HER2 - for treating breast cancer
And there are more to come.
People Orientation
How does all this happen: It all comes down to people.
Investment in people is what has made the difference at Genentech. We
work hard to make sure our employees enjoy coming to work every day and that
they participate in the success of the company. It has paid off -- not only in terms
of our business achievements but also in terms of employee moral.
Everyone in the company has an opportunity to own shares of
Genentech s stock - most of them are shareholders. It is our belief that those
who are making things happen should share significantly as our business grows.
We ve gone after the best folks we could find anywhere -- and have not
been limited by geographic location. We ve staffed lean and have maintained a
tight focus on day-to-day operations. We ve involved a broad-based mix of
scientists and business people in our planning and decision-making. We ve even
hired 30 North Carolina graduates.
Genentech s research organization is among the largest in the world
dedicated to recombinant DNA technology. With some 350 Ph.D. s and M.D. s, it
is also one of the more entrepreneurial groups of people you are likely to come
across. What about the management of such a crew? It s easy. We don t work
on any projects we can t get someone excited about. (Sometimes it takes longer
than others, but we never change that rule.)
I also feel it is important that once you ve defined "stretch" business goals
you allow a looseness in the organization that enables people to decide for
themselves how best to achieve those goals. There also has to be enough
freedom and time for people to follow their nose on new idea. And management
needs to "walk around" and pay attention to what s really motivating employees.
184
In our business, publishing our research is important -- after we file
appropriate patents. Genentech scientists publish about 250 papers each year
(about one every business day). I know this is unusual for a company; but I
believe we have more to gain from our interaction with the world s scientific
community than we stand to lose by allowing this information to fall into the
hands of our competition. Such interaction also is critical to attracting and
keeping the very best scientific talent.
Two decades ago, Genentech began confounding the skeptics by turning
out a procession of products. Today almost half of all biotech-based products on
the market come from our labs.
All this happened because a scientist and a business man got together
with a vision of what was possible and found a few people to back them. People
like you in this audience tonight. Whether you are concerned with building your
company from the inside or starting new businesses, it really all comes down to
finding the right people that are driven by a dream. Give them a little money, a
little guidance, protect them from the naysayers and the red tape, and get out of
their way. Good things will happen.
Thank you.
185
APPENDIX H
Genentech s
Chairman
To Leave Firm
By Carl T. Hall
Chronicle Staff Writer
Investment banker Robert Swanson
announced yesterday he is resigning as
chairman at Genentech Inc., the pioneer
ing biotechnology company he helped
found 20 years ago.
In a news release, Swanson, 49, said he
intends to step down
from Genentech s
board at the end of
this month to concen
trate on his "first
love" financing a
new generation of
"novel young compa
nies working in un
charted areas."
He did not name : obert
any particular pro- >wanson
jects and declined interview requests.
Genentech plans to announce his suc
cessor today. Speculation yesterday cen
tered on current members of Genentech s
board, including Chief Executive Officer
Arthur Levinson and two outside direc-
GENENTECH: Page E2 Col. 3
GENENTECH
From Page El
tors Franz B. Humer, chief operating
officer and head of the pharmaceutical di
vision at Roche Holding Ltd., the Switzer
land-based drug maker that owns majority
interest in Genentech; and J. Richard
Munro, chairman of the executive com
mittee of Time-Warner Inc. s board.
The selection of Burner would suggest
a stronger role for Roche in Genentech s
day-to-day affairs, although both compa
nies have insisted they intend to maintain
nentech s independence. Officials de-
ued to comment yesterday.
Swanson said he intends to remain as a
Genentech consultant. He also will contin
ue as chairman at another biotech firm in
South San Francisco, Tularik Inc.
As a 29-year-old investment banker,
Swanson was among the first to recognize
the commercial potential of genetic engi
neering, the technology that allows scien
tists to clone and manufacture rare pro
teins with medicinal and other uses.
He founded Genentech in 1976 along
with Herbert Boyer, a biochemist at the
University of California at San Francisco
who played a key role in the industry s
scientific development.
Boyer, though no longer active in Ge
nentech s management, continues as a
board member.
Swanson served as CEO from the com
pany s inception until February 1990, but
he continued as chairman.
Levinson paid homage to Swanson yes
terday for shepherding Genentech into a
major corporate presence in the Bay Area.
The company now claims about $1 billion
in annual sales, has five drugs on the mar
ket and employs more than 3,000 people.
Roche now holds controlling interest
in Genentech. The Swiss drug giant also
has an option to acquire all remaining
shares, with special provisions that effec
tively limit day-to-day price changes in the
stock.
True to form, Genentech shares yester
day barely budged following the early-
morning announcement of Swanson s res
ignation. The stock ended down 13 cents at
$53.25 on the New York Stock Exchange.
San Francisco Chronicle; December 13, 1996; El
186
APPENDIX I
The Man Who Invented the Biotech Business
There is a poignant irony in the death
last week of Robert Swanson, a co-founder
of Genentech, from brain cancer at age 52.
A quarter century ago he had a singular
role in the formation of the biotech indus
try. Today with new medical treatments
coming at a faster pace than any other
time in human history, one of them will
come too late to help him.
In January 1976, Swanson, then a 28-
year-old venture capitalist, drove up from
Manager s Journal
By Frederick J. Dorey
Silicon Valley to the University of Califor
nia at San Francisco. He had requested 10
minutes with Herbert Boyer, a biochemist
and one of the inventors of recombinant
DNA. The discussion adjourned to a local
pub for several hours, and Genentech was
born.
It is not too much to say that this
meeting produced a new structure for
science-driven business and fundamen
tally changed the relationship between
business and America s research uni
versities. Before Swanson made that
trip, the best university research scien
tists would not consider joining indus
try, for their academic careers would
be ruined if they did. Universities,
with their basic-research laboratories,
and corporations, with their focus on
product-driven development, passed like
ships in the night. While universities
published research papers, secrecy was
the rule in industrial research. And
research scientists who consid
ered joining companies knew
they would have to con
form to a rigid corporate
culture.
In the mid-1970s, a
structure to help new
companies commer
cialize technology was
evolving in Silicon Val
ley. But the small
community of ven
ture-capital firms
was focused entirely
on electronics. At
about the same time,
and in the same region,
Mr. Boyer at UCSF and
Stanley Cohen at Stanford
had succeeded in moving a
gene from one organism to
function successfully in a dif
ferent kind of organism.
Recombinant DNA was
the province of a small
group of academic scien
tists and the subject of
a lively ethical debate, i
with no commercial in
terest whatever. A lone
university administrator
persuaded the scientists
to file a patent application.
Swanson, with degrees in chemistry
and management from the Massachusetts
Institute of Technology, wondered whether
new organisms could be created to help dis
cover and produce pharmaceutical pro
teins. The answer seemed to be yes-given
a lot of hard work, money and very good
science. Swanson would have to start a
company, hire the best research talent and
win over skeptical investors. But this was
the 70s, and gene splicing was not elec
tronics. The most creative researchers had
little interest in working for business, and
there was no model for a start-up company
based on biology. Research and product
approvals would take years. Swanson
would have to invent an entirely new kind
of company.
Swanson became CEO of Genentech
and set out to create an organization that
the best scientists would want to join. The
quality of their science was paramount;
they could publish as much, and as often,
as possible. Genentech developed its own
products and retained the commercial
rights. Unlike the pharmaceutical indus
try, Genentech protected those rights
through patents, not secrecy. Swanson pio
neered the use of research-and-develop-
*""**
ment partnerships to help fund the re
search. Through stock options the scien
tists would share in the success of their
work.
Swanson had an unpretentious style
that fit perfectly with free-wheeling
scientists. He had no execu
tive parking spot. Recruits
who were impressed
that the CEO had of
fered to drive them
to lunch found them
selves waiting at
the company door
while Swanson
hiked to the far end
of the parking lot to
get his car. Genen
tech s Friday after
noon parties would
have made a phar
maceutical executive
blanch, but they de
lighted the employ
ees.
Within a few years.
Genentech had suc
ceeded dramatically. A
flood of new companies fol
lowed its path. Swanson s eye
for talent produced a re
markable alumni group
whose members now
lead many of the next
generation of
biotech companies.
Investors and the
public were trans
fixed. Fifteen years before the Internet
frenzy began, Genentech s IPO in October
1980 was the most successful in history.
The stock opened at $35 a share and
reached as high as S88 on the first day of
trading.
Swanson eventually stepped back
from active management of the com
pany. But he had one more dramatic
example to set for the biotech industry.
Pharmaceutical product development
takes enormous resources and years of
effort, intimately it is beyond the sole
resources of even the most successful
biotech company. In 1990 Genentech
stunned the industry by announcing
that Roche Pharmaceuticals would buy
a controlling interest for S2.1 billion;
some called it a sellout. Employees wor
ried that Genentech s distinctive culture
would disappear. But it needed the cap
ital to fund development, and Genentech
continues today as a remarkable source
of scientific innovation.
Swanson stayed on as chairman until
he resigned from the Genentech board in
1996. He worked with his own venture cap
ital fund and served as a director of a
number of private companies. He stayed
out of the limelight, turning down most
Robert Swanson
Founded Genentech
Wall Street Journal; December 14, 1999; A22
continued
187
speaking invitations. He was diagnosed
with a brain tumor last year but continued
to be active in business until last summer.
He is survived by his wife and two daugh
ters.
In the quadrangle of the new re
search complex at Genentech, there is a
life-size metal sculpture of two men sit
ting at a table, each with a beer. One is
Bob Swanson dressed in a suit. He is
leaning forward enthusiastically making
his point. The other is Herb Boyer, the
counterculture university scientist in
denim vest and bell-bottom jeans. He is
leaning back, skeptical but intrigued. He
is on the verge of deciding to cast his
fate with the young venture capitalist. It
is a fitting memorial to the moment of
the founding of Genentech, the biotech
industry and a new approach to the
business of science.
Mr. Dorey, a lawyer in Palo Alto, Calif. , is
former president of the Bay Area Bioscience
Center.
news and views
188
Obituary
Robert A. Swanson (1 947-99)
On 6 December, the founder of Genentech,
Robert Swanson, succumbed to brain
cancer. He was only 52, and with his death
the world has lost one of its visionaries
a man who is widely considered to be the
father of the biotechnology industry, and
who a year ago was included as one of
the few living people on a list of the
millennium s most influential individuals.
Swanson grew up in Florida and was
educated at the Massachusetts Institute of
Technology, obtaining degrees in
chemistry and business in 1970. He started
his professional career as a venture
capitalist with Citicorp in New York, then
in 1973 moved west to San Francisco and
began a lifelong fascination with molecular
biology. He was in the right place at the
right time, as the pioneering gene-cloning
experiments of Herbert Boyer, Stanley
Cohen and colleagues were being carried
out only minutes from his office.
In 1976, he arranged a fateful meeting
with Boyer a meeting now
commemorated by a life-sized statue of the
two men in the Genentech research
complex (Swanson s is shown in the
picture here). After several hours and a few
beers, they agreed to team up to create
Genentech, the world s first biotechnology
company. The upshot was an industry that
is now worth more than $100 billion and is
responsible for around 80 approved drugs
that benefit millions of people.
Although Boyer laid the scientific
foundation for the company and set its
early research direction, he remained at the
University of California, San Francisco
(UCSF). So it was the 28-year-old Swanson
who ran Genentech. Initially, this meant
raising enough money to fund proof-of-
principle projects at UCSF and the City of
Hope Medical Center. In 1977 these groups
demonstrated that bacteria could be
coaxed into making the human protein
somatostatin. Swanson then set his sights
on human insulin, a previously
unavailable pharmaceutical, and rented
space in a warehouse to build Genentech s
labs.
This transition, from a paper
corporation that supported research in
academic labs to a real company, was a
critical juncture for Genentech. Swanson
now had to convince young postdocs to
forgo the standard academic career path
and to join his quest to create medicines
through the power of a new technology. He
succeeded because he was able to generate
his own conviction and excitement in
others, as we know onlv too well we
Venture capitalist and
the Pied Piper of
biotechnology
were two of his earliest recruits. Remember
that at the time genetic technology had
limited funding, and even leading
molecular biologists thought it was neither
commercially nor intellectually viable.
Swanson was a businessman, but he
never gave up hope in the science or the
scientists during the early days. It was
Swanson who was smart enough to hire the
best people and give them an environment
that allowed them to make a difference.
Swanson also reminded us why we were
doing it for the patients and he
challenged employees with the ultimate
personal motivation, "Would you put this
drug into your own child s body?"
And it was Swanson who made all that
hard work a lot of fun. He led the
celebration as each milestone passed,
including the early successes with drugs
such as insulin, growth hormone,
interferon and factor VIII to name a few. In
1987, when the US Food and Drug
Administration approved Activase (tissue
plasminogen activator) for the treatment
of heart attacks, the festivities included,
with permission from nearby San
Francisco International Airport, a huge
firework display that caused a temporary
disruption of air traffic
Swanson and Boyer started a company,
but they also nurtured a unique culture at
Genentech one that departed radically
from the standard in the pharmaceutical
industry. First, there was very little
hierarchy, a structure that encouraged
employees to take risks and that paid huge
dividends in scientific thinking and
productivity. Second, there was the need to
attract the best postdocs and scientists
from academia.
Twenty years ago it was considered
heresy for top academic scientists to join
industry. Swanson and Boyer attacked the
reluctance at its source, which was the
inability of pharmaceutical companies to
see the connection between basic
research and ultimate commercial
profitability. Boyer had made it dear
that, to recruit top scientific talent,
Genentech would have to allow them
to publish their discoveries, and
promptly. This policy gave
Genentech a recruiting
advantage and forced many
other companies to
establish a similar
approach. Part of
Swanson s legacy is the
number of seminal
publications in biology produced by
scientists employed by industry.
Genentech was again an innovator in
1980 when it became the first bio tech
company to sell stock to the public. This
was quite an education, for many of us had
no idea what it meant to go public .
Employees were told that the stock might
be floated at $20 per share. The deal was
finally priced at $35 per share and the first
shares traded at $88. Swanson and
Genentech had created business history
long before the word Internet had become
common currency. Furthermore, we
molecular biologists now understood that
it was possible not only to create life-
saving drugs, but also to be well
compensated for our work. We felt we had
the best jobs in the world.
Swanson was chief executive officer of
Genentech until 1990, then served as
chairman until his retirement in 1996.
That year he joined the board of Tularik, a
private biotech company specializing in
gene regulation, as chairman. He also
returned to his roots by starting his own
venture-capital firm, and continued to
enjoy helping young scientists and
businessmen turn their ideas into start-up
companies. However, Bob s family remained
his top priority. He is survived by his wife,
Judy, and daughters Katie, 16, and Erica, 11.
Bob Swanson was dedicated to
generating drugs that would save lives. In
following that aim, he also made people
believe, like him, that the seemingly
impossible was indeed possible. It is that
spirit which will live on.
DavWV.Goeddel and Arthur D.Levtn*on
Davirt V. Gorddel is HI Tii/iiri/t. inc.. 2 Corporate
Drive, South Son Fraiicixn, Gi/iliirinii 9J08H.
USA. e-mail: rfvj<3>rii/iirit.u>rn
Arthur D. Lcvinsmi is ill d litntcch. Inc.. I DM
Hiij; South .Snii FrancitiV. Oililornni 94080,
l/ S"/\. r-inail: alevinuiii&$ftn:cniH
264
VMIKI \tn 4(i.t<:nl.\S t \R\ ji
189 APPENDIX J
U.S. PRIZES
17 Get Science,
Technology Medals
Researchers who plumbed the depths of the
Antarctic ozone hole, helped show that mod
ern cells are assembled from once-indepen
dent life-forms, and created reading machines
for the blind were among those awarded Na
tional Medals of Science and Technology this
week by President Bill Clinton. They will be
honored at a 14 March ceremony.
A dozen investigators won the coveted
National Medal of Science, which Congress
created in 1959, while four investigators and
one company gained the prestigious Nation
al Medal of Technology, created in 1980.
Cellular biologist Lynn Margulis of the Uni
versity of Massachusetts, Amherst, one of
two women honored, helped win acceptance
for the once-controversial idea that plant and
animal cells are the product of partnerships
between ancient, bacterialike organisms. At
mospheric researcher Susan Solomon of the
National Oceanic and Atmospheric Admin
istration, an unusually young medalist at 44,
was honored for her studies of the South Po
lar ozone hole. Raymond Kurzweil, founder
of Kurzweil Technologies, was recognized
for his pioneering work on voice recogni
tion, which has produced many modern aids
for the visually impaired.
The other science winners, by field, are:
Biology David Baltimore, California Insti
tute of Technology; and Jared Diamond,
University of California, Los Angeles.
Chemistry Stuart A. Rice, The University
of Chicago (UC); and John Ross, Stanford
University. Economics Robert M. Solow,
Massachusetts Institute of Technology
(MIT). Engineering Kenneth N. Stevens,
MIT. Mathematics Felix E. Browder, Rut
gers University; and Ronald R. Coifman,
Yale University. Physical Sciences James
W. Cronin and Leo P. Kadanoff, UC.
Other National Medal of Technology
winners are: computing innovator Glen
Culler. Culler Scientific Systems; biotech
industry pioneer Robert Swanson (de
ceased); ARPAnet founding father Robert
Taylor (retired); and Symbol Technologies
Inc., for development of laser bar code
scanning and wireless local area network
technologies. -DAVID MALAKOFF
Science 287 (February 4, 2000): 735
INDEX- -Robert A. Swanson
190
Aberg, Bertil, 116
Adams, Dan, 31-32
Alpha-Laval, 50-51, 53
American Hospital Supply, 83
American Meat Institute, 17
American Type Culture Collection, 46
Amgen, 99
Asilomar Conference on Recombinant
DNA Molecules, 14, 69
Bayh-Dole Act, 100
Banker, Bill, Jr., 75
Baxter, John, 55
Baxter Travenol, 51, 115
Berg, Paul, 14
Biogen, 31, 66, 97, 99
biotechnology industry, 7, 98-99,
124-125, 126
Bishop, Michael, 64
Bok, Derek, 65-66, 67, 68-69
Bolivar, Paco, 28
Boyer, Herb, 31, 98, 102, 123
advisor, Genentech research,
15-24, 28, 37, 43-44, 63
founding Genentech, 13-17, 20,
30-31, 85
Genentech board of directors,
54, 61
scientific credit/publication,
22, 55, 57, 109
staff recruitment, 82
UCSF lab, 66, 74
Byers, Brook, 10
Byrnes, Bob, 83
Caltech agreements with Genentech,
20, 23, 26, 36, 48, 74
Cape, Ron, 12-13
Caufield, Frank, 10
Cetus, 97, 99
advisors, 15
microbial screening system, 13
Cetus (continued)
and recombinant DNA, 12-13
strategy different from
Genentech 1 s, 49, 116
Swanson s job application to, 12-
13
Chiron, 116
Citicorp Venture Capital, Ltd.,
Swanson s employment at, 5-6
City of Hope Medical Center, 180,
120, 121
agreements with Genentech, 20,
23, 26-27, 36, 48, 74, 76
Cohen-Boyer patents, 32-33, 45-46
Cohen-Boyer recombinant DNA
research, 33
Cohen, Stanley N., 15
Corning Glass, 51, 52, 113, 116
Coyle, Bud, 102
Crea, Roberto, 76, 77, 82
Creative Biomolecules, 77
Crocker Capital, 32
Crocker, Charles, 32
Cultor, Ltd., 113
Davis, C.J., 2
Davis, Tommy, 52
Dayoff, Margaret, 16
Diamond v. Chakrabarty, 45-46,
100, 118
DNA
chemical synthesis, 18-19, 22,
24, 30, 36-37, 42, 54, 63, 74,
76, 77, 82, 87
complementary [cDNA] cloning,
18-19, 26-27, 42, 54-55, 63
Eastman Chemical, 113
Eli Lilly & Co., 17, 53, 80, 82,
85, 86, 87, 114, 115, 116, 121-122
Farley, Peter, 12, 97
191
Faulkner, Harry, 52-53
FDA approval, 40-41, 80-81, 89, 115
Fluor, 51, 52, 53
Genencor, 113
Genentech, Inc.
animal health business, 50, 113
benchmark payments, 59-60, 105-
106
board of directors, 6, 35-36,
52-53, 54, 61, 125
business /corporate plans, 17,
21-22, 35-36, 38-39, 48, 77,
85, 91-92, 93, 115
corporate communication, 88
corporate culture/philosophy,
35, 58, 61, 107-111, 112, 125-
126
corporate goals, 38-39, 84
diagnostics, 49, 51
employee ownership, 84, 109-110
facilities, 23, 51, 74-75
fermentation, formulation,
purification, 82, 85-86
financing/ financial strategy, 21,
26, 27, 39-40, 47-48, 50-51, 53-
54, 58-60, 78-79, 82, 85, 99,
103-104
FIPCO (Fully Integrated
Pharmaceutical Company), 39,
77-79, 108, 111-112
founding/naming/incorporating the
company, 13-23, 40
ho-ho s, 29, 109, 110-111
joint ventures, 51, 53, 115-
116
manufacturing /marketing/
production, 83, 86, 111-112
Point San Bruno location, 75
postdoctoral program, 127
product focus/selection, 35-36,
89-90, 93-94, 113-115
publication policy, 56-57, 58,
104-105, 118-120
public offering, 52, 53, 54, 83,
99-107
Genentech, Inc. (continued)
scientific advice / advisors , 54,
90. See also Boyer, Herbert
scientists, policy regarding,
58-62
shares /shareholders, 30, 50-51,
83-84, 103-104, 107, 109-110
staff recruitment, 20, 55-56,
57, 61, 76, 81-84, 85-86
Wells Fargo location, 74.
See also DNA; Swanson, Robert A. ;
intellectual property
Genentech Foundation for Biomedical
Science, 119
Genentech research products/
projects
beta endorphin, 92
foot and mouth disease vaccine,
113
growth hormone, 50, 55, 78, 80,
82, 85, 86, 87, 88, 92, 93, 94,
114, 115, 116, 122, 123
hepatitis B vaccine, 87, 88,
91, 123-124
industrial enzymes, 113
insulin, 16-17, 37, 40, 42, 49,
78, 80, 85, 86-87, 91, 93, 94,
114, 120-123
insulin-like growth factor, 92
interferon, 78, 85, 87, 89, 91,
93
nerve growth hormone, 92
plant research, 113
secretin, 92
somatostatin project, 24-25,
28, 36-37, 40, 42-43, 48, 85,
86, 120
thymosin, 87, 89-90
tissue plasminogen activator, 79,
90, 114-115
tobacco project, rejected, 61-62
Genex, 98, 99
genomics companies, 93
Genzyme, 49
Gilbert, Wallace, 31, 66, 108-109,
120
Glaser, Don, 12
Click, Leslie, 98
192
Goeddel, David, 76, 77, 82
Goldberger, Marvin, 65
Goldstein, Allan, 89
Goodman, Howard, 18, 25, 26, 29,
31, 54, 55
Gray, Paul, 65
growth hormone . See Genentech
research projects
hairy cell leukemia, 89
Hambrecht, Bill, 16-17, 102
Hambrecht & Quist, 16, 102
Handler, Philip, A3, 98
Harsanyi, Zolt, 98
Harvard University, 71
and Biogen, 66
Board of Fellows, 67
Helinski, Donald, 15
Hewlett-Packard, 35-36, 51, 115-116
Heyneker, Herb, 25, 28, 42, 64-65,
76, 77, 82
Hoffmann-La Roche /Roche, 78, 85,
89, 117
Institut Merieux, 123, 124
insulin. See Genentech projects
intellectual property,
licensing/patenting, 32-34, 45-
47, 51, 56, 57, 58, 60, 71-73,
79, 88, 96-97, 100, 104-105, 115,
118-120, 122-123
International Nickel, 31
Itakura, Keiichi, 18, 23, 24-25, 27,
30, 40, 48, 54, 76, 104
Kiley, Tom, 46-47, 110-111, 118-
120, 124
Kleid, Dennis, 76, 77, 82
Kleiner & Perkins Venture Capital
(Kleiner, Perkins, Caufield, &
Byers), 9-10, 27-28, 74, 100
Kleiner, Eugene, 9, 12, 13, 20-22
Levinson, Arthur D., 64, 125
Loustaunau, Jack, 9, 10
Lubrizol, 52, 53, 103
Lyon & Lyon, 46-47
Massachusetts Institute of Technology
[MIT], 2-4, 71
Mayfield Fund, 28, 52
McBane, Pat, 102
Merck, 35, 39-40, 42, 80, 115, 124
Middleton, Fred, 77, 81, 82
Miozzari, Giuseppe, 91
Monroe, Dick, 51-52
Monsanto, 88, 113
Morse, Dick, 4
Morse, Kenneth P., 4
Murfin, Donald L., 53, 54
National Institutes of Health
[NIH], 71
National Pituitary Association, 78
NIH guidelines for recombinant DNA
research, 18, 41-42, 44, 63-64
Nippon Life Insurance, 51
Nobel committee, 31
Janssen, 39
Japan, drug approval process in, 97
Johnson & Johnson, 39, 79
Office of Technology Assessment, 98
Office of Technology Licensing, 98
Olivier, Edmund M. , 52
Kabi, 82, 85, 114, 121, 122, 123,
124
Kaposi s sarcoma, 89
Kennedy, Donald, 65-66, 67, 68
Kennedy, Edward, 43, 98
Packard, David, 35-36, 52, 63, 113
Pajaro Dunes conference on
university-industry relationships ,
65-70
Pasteur Institute, 124
193
patenting/licensing. See
intellectual property
Perkins, Tom, 9-10, 12, 20-22, 54,
63, 102
pharmaceutical industry reaction to
biotechnology, 116-117
Prudent Man Law, 12
protein,
activation, 86
expression, 37, 54
production in bacteria, 17
structure, 16, 88
Rathmann, George, 97, 107-108, 116
recombinant DNA
commercialization of, 12-17, 31-
32, 100, 116-117
controversy /risks, 18, 67-69
explaining, 102
legislation, 98
proving commercial potential of,
26, 27, 74, 75
safety guidelines, 18, 41-42, 44,
63-64
Recombinant DNA Advisory Committee
(NIH), 18
Reimers, Niels, 33, 44
Riggs, Arthur, 18, 23, 24-25, 27,
36, 40, 47, 48, 54, 74, 120
Roche. See Hoffmann-La Roche
Ross, Mike, 81, 82
Rutter, William, 25, 26, 31, 43,
54, 116
Saxon, David, 65
Scheller, Richard, 104
Schering Plough, 89
Schneider, Nelson, 97
Scottish Trust, 102-103
Securities and Exchange Commission
(SEC), 101, 102, 106-107
Seeburg, Peter, 26, 55, 76, 85, 91
Sharp, Phillip, 14-15, 97-98
Sheehan, Brian, 82
Shine, John, 55
Smith, Phil, 5, 7
somatostatin/somatostatin research,
24, 25-28, 36-37, 42-43, 48, 75
Stanford Research Institute, 76, 77
Stanford University
intellectual property, 7, 32-35
Office of Technology Licensing,
32-33, 40, 44
Swanson, Arline Baxter, 1
Swans on, Arthur J., 1
Swanson, Judy, 101
Swanson, Robert A. ,
business philosophy, approach,
contributions, 7-8, 38-41, 48,
58-59, 81-96, 126-127
marriage, 101
Syntex, 14, 79, 108, 116
Tappan, David S. , 53
Tosteson, Daniel, 67
Treybig, Jim, 9, 10
Ullrich, Axel, 18, 26, 55-56, 76,
85, 91
University of California licensing
office, 26-27, 45
University of California Board of
Regents
lawsuit against Genentech, 1982,
122-123
research agreement with
Genentech, 7, 28, 36, 43-44, 74
University of California, San
Francisco [UCSF] Department of
Biochemistry, 28-29, 55, 109
University of Florida Gatorade
patent, 33-34
university-industry associations ,
24-25, 28-29, 31, 55-58, 64-73
venture capital/capitalists, 5-7,
27, 32, 50, 93, 95, 102, 125
Wallenberg, Marcus, 53
Watson, James D., 64
Sally Smith Hughes
Graduated from the University of California, Berkeley, in
1963 with an A.B. degree in zoology, and from the University
of California, San Francisco, in 1966 with an M.A. degree in
anatomy. She received a Ph.D. degree in the history of
science and medicine from the Royal Postgraduate Medical
School, University of London, in 1972.
Postgraduate Research Histologist, the Cardiovascular
Research Institute, University of California, San Francisco,
1966-1969; science historian for the History of Science and
Technology Program, The Bancroft Library, 1978-1980.
Presently Research Historian and Principal Editor on medical
and scientific topics for the Regional Oral History Office,
University of California, Berkeley. Author of The Virus: A
History of the Concept, Sally Smith Hughes is currently
interviewing and writing in the fields of AIDS and molecular
bio logy /biotechnology.
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